6 Key Points To Consider When You Want To Apply For Loan To Fund Your Business
Businesses are managed with capital and to have the needed capital you might sometimes want to go for a loan. Taking a loan for your business can be a blessing in disguise and it can also put you in a mess if you do not understand certain things first. It is not always necessary to have interpreters to decode the terms and conditions of the loan agreement to you.
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You need to carefully study the terms and conditions of the loan application you are requesting to fund your business and analyze if it will drain your profits. To get started with, I have explained in this piece eight key points as a business owner you need to consider when you want to apply for a loan.
Consider A Viable Business Plan
The first and most important thing I will discuss with you is a viable business. I believe you do not want to make losses. That is why it is important to plan for a viable business which will reap you more profits to pay for the loan you will go for. How do you spot a viable business?
Some businesses look good but they won’t help make enough profits to cater for your loan repayment. For instance, in a cold weather having a business plan to deal in sweater, umbrella, raincoat and other necessities that can help people wear to work, church, school in the midst of the rainy season and weather and trying to sell ice cold drinks, icecreams, chilled fruit juices etc.
These two businesses, which one do you think is viable and can make you gain profits. And so before you conceive the idea to go for loan, try to have a viable business plan or if you have an ongoing business try to access the business and analyze its profit margin and ascertain whether you can raise enough money to pay off the loan.
The type of loan you want to secure for your business is very important. Have you sat and thought of the loan type you want to acquire? If not then you need to start thinking about it. Some people even go for personal loans to fund their business and later regret doing that. Below are some of the loan types you should consider
- Traditional term loan: This loan comes with its own amount and terms you need to follow to repay it
- SMEs loan: This loan type is for Small and Medium Enterprises. You can apply for this loan depending on your business classification.
- Merchant Cash Advance: Businesses that accept payment in the form of credit card can receive a lump sum for financing which is in cash and pay back with the credit card transactions the business owner has at the time of which in one way or the other is an electronic way of loan acquisition.
Before some lenders will loan your business the amount it needs, you need to back it with a collateral. In this case, the loan you want will be given only if you give the lender the option to seize your asset and do with it as the lender pleases during the period you’re not able to pay the loan. And so what you need to do is to rethink if you will not be affected in risking an asset. If you will be affected, then the best option for you is to go for an unsecured loan.
Don’t be in the dark. Get to know the interest rates your lender is charging and so doing, it paints a picture of whether the loan you want to apply for will be affordable or not. Some people go for loans without checking for the interest rate from the lender. This is a very bad practice. So for instance, the interest rate on $10,000 can be $5,000. Interest rates also come with the number of months you will choose to pay back the loan. So loans that will take you so many months to pay raises the rate on the interest to be paid.
So do the calculation and know the amount you should pay with the interest attached to it. Check for the interest rate of other lenders to figure out the best option for you and your business.
Determine The Amount
You need to determine the amount you need for your business. Be honest with yourself. Some lenders will convince you to take more funding for your business. Do not go beyond your budget. It is good to take out a loan to fund your business but taking too much money which you have planned on how to use it for your business can put you in a real mess because it will be difficult to repay it back. Have the amount you want in mind and stand by it.
Once you have decided on the necessary amount of money you need to fund your business, you can again analyze to see if it will be enough. If it will not be sufficient, you can go in for more.
What is the payment process ? Know the lender’s terms of payment. In this regard, you can know if the payment process is daily, weekly or monthly. Don’t be in a haste to take the loan. Just go through the payment process list of the lender.
You should also find out how you can make payment. Find out if you can make payment through online or cash deposit.