Getting a small business loan isn’t easy due to the financial crisis of 2008 and the strict lending criteria. But, assuming your credit score is in appropriate position, there may be some of alternative or traditional lenders, competing for your business. So what do you need to ask before committing to a specific type of loan or lender?
What Is The Interest Rate?
This is pretty essential, and you’ll almost have been advised in advance. But, it is essential to examine whether the rate is variable or fixed, and if the rate is variable whether it directly tracks the base rate. Given that the interest rates are at a remarkable low and are in likely to increase within the next year or two, a fixed fee could be very effective, assuming it is competitive.
How The Interest Is Charged?
There are two practical methods of charging interest on business loans. One is to bundle repayments and interest right into a single monthly payment, unlike a mortgage. The second one is to set a fixed monthly repayment and charge interest as it arises. There are benefits and drawbacks to both methods. The first is more expected and represents a smaller monthly commitment on the start of the loan process, when more capital is outstanding and more interest is chargeable. And with the second method, you’ll pay substantially less, as you will not be making payments which are in large part interest and best and partly capital – so your debt will decrease quickly.
What Type Of Documentation Is Needed?
A bank may need to see a number of documents before signing off the business loan request. These documents could include business balance sheet, profit and loss statement for the last three years, tax returns and bank statements; maybe even an in depth business plan. In most cases, alternative lenders will be less concerned with this sort of information, as they have different lending standards. It’s essential to understand in advance what’s going to be required; in any other case you could risk delaying the loan.
What Is The Term?
Of course, it’s essential to know how long it will take to process the loan and the how quickly you will get the cash. You should additionally ask about the possibility of any delays – what could delay the process and what you need to do to mitigate it?
What Type Of Security Do They Ask For?
Definitely, not all business loans are secured, though unsecured borrowing can be complicated to acquire and generally attracts higher interest rates because of the added risk. However if you’re going to get secured business loan, it’s important to know what types of collateral the lender will consider and whether or not they’ll accept property as security. And if you default on a secured loan, the lender can take the possession of your asset used as collateral – even if it is a personal asset like your house.
What Charges Will Be Charged?
The rate of interest is not the only cost linked with borrowing – and the fees can also make a huge difference. A lender should clearly explain any charges in advance, however it is reasonable that some charges may be hidden, so be sure to ask.
What Happens If You Repay Early?
Don’t overlook this question. In case your business develops faster than expected and you end up with extra cash, it can be an awesome idea to pay down your debts. Make certain that you understand the cost implications of paying back your loan early.
Don’t forget to ask your lender these questions. Asking these questions will help you to understand the terms and the process of the business loan and additionally you can save yourself from wicked surprises.