Small business proprietors looking for business financing have lots of funding options thanks to a proliferation of lending firms and financing programs providing quick and easy funding solutions. But the fact is just a few of these choices will be the right fit for your nascent small business. Even though the lure of quick cash regardless of personal credit can be appealing, be cautious of common traps when considering a lender for your business:
- Understand When Funding Is Needed
Understand when business credit services are required and when not. At the same time as business credit can be important as your business matures, it doesn’t make a difference for a startup business applying for a loan. Startup businesses are not expected to have a solid business credit file, therefore any small business extolling the necessity of business credit services to apply for a business loan may also simply be doing you a disservice.
Instead, deal with the strength of your personal credit score, as lenders will focus on this more due to the fact that you’ll eventually be responsible for paying back the borrowed amount.
- Watch Out For The Rate And Speed
Understand the rate you pay for convenience and the speed. Some short-term funding lenders and cash advance providers offer so-called “quick” funding with fast application process and a lenient evaluation of personal credit. However, this speed and convenience comes at a cost. Small business owners should be careful when considering a cash advance, primarily if fees and repayment time-frames are extremely tough. Some of the firms offer yearly percentage rates as high as 200% with amortizations as slow as 3-4 months – terms like these can put you in financial stress before your business is even started.
Defend your business by reading and evaluating all the terms carefully and make sure that you have a clean plan to pay back the borrowed amount before signing at the dotted line for a business cash advance.
- Know Your Own Business Plan
Be wary of any business insisting that you need a business plan and a financial forecast so one can sell you an expensive business plan package. Additionally, in case you’re paying someone to perform this for you, then your business can also have bigger troubles. Having a direct hand in developing the business plan and financial projections confirms that you as the business owner understand the ins and outs of the business and feature defined objectives for business growth.
You need to have a very good expertise of what makes your business tick in the present, and where it’s actually headed in the future to protect it from other unwanted costs that you may stumble upon all throughout the startup journey.
- Make The Lending Decision Yours
Remember the fact that the decision of a lender is yours. As one instance, many homebuyers engage a real estate agent to help them with their home purchase, and specifically first-time homebuyers. Many real estate agents will recommend a mortgage lender they have worked with in the past. But, real estate agents need to offer you with a list of at least three lenders to help you to estimate and compare the costs.
Many times you can save lots of amounts of cash by shopping around and deciding on a lender that suits your situation best. At the same time as your real estate agent recommendation is really worth of attention, remember the fact that you’re not required to use that lender.