Running a business isn’t as easy as most people think. There are so many complications and challenges to deal with along the journey, not forgetting that you have your competition to deal with, which requires you to be at the top of your game. But then again, in business, you have to spend money to make money. As cliché as this adage may seem to be, it’s true in every sense. It may mean coughing up more cash to finance the various expenses that your business needs to obviously incur for growth. These may include expenses such as advertisement, equipment, labor, and other assets. In the first few months of your startup, it may become tricky to balance between the running costs, managing costs, and other business needs, especially considering that your business may not have a stable ground yet when it comes to revenues.
Running capital is one of the many hindrances affecting so many entrepreneurs and only a fraction of business owners will admit that they are having challenges in running their businesses. For sustainable business growth, it’s important to have sufficient cash flow. But cash is always a scarce resource, and this is what keeps lending institutions in business. While taking on debt may seem a bit scary, especially for a small business that just took off, it may be the only option for you as a determined entrepreneur. But not all loans are equal and how you approach debt acquisition can have a huge impact on your business. Even if you’ve personally taken a loan before and perhaps you’ve fallen into the bad credit rabbit hole, finding the right loan for your circumstances will be the best move for you as a determined entrepreneur. Thanks to the high competition in the lending industry, people (and even businesses) with a poor credit rating can nowadays secure loans that they can comfortably repay. But the main question is, what’s the best loan for your business? On this note, here are some helpful tips on how to find the right loan for your business.
1. Figure out Why You Need a Loan
There are so many reasons why your business might need a loan. The minute you approach a lender, the first question they may ask is your reason for getting the loan or how you intend to use the money lent. Some of the most common reasons businesses seek loans include:
- To increase cash flow
This is a major challenge to entrepreneurs, especially those who have to deal with customers who don’t pay upfront. Of course, it’s a major risk, but it could be the only way to retain customers in some types of businesses. Your operating capital is always a huge determinant of whether you stay in or out of business. In addition to this, you may have a huge catalog of unsold inventory that may need to be moved before getting new merchandise. These are examples of issues that need sufficient cash flow. A short-term loan can also be a major boost towards settling some bills, paying your staff, rent, utilities, or stocking up.
In the course of running your business, you may come across expansion opportunities that look promising. But then again, expanding has other hefty costs that need to be considered and as expected, you may not have enough cash to advertise, renovate, or increase your staff. A loan will help to cover these expenses without you having to break into the operational funds.
- Improve your chances for bigger loans
One of the best things about credit is that it helps establish good business relationships. If you get a first, second or third loan, make your repayments on time, and manage to clear your debt, it improves your credit score and builds trust with your existing and future creditors/lenders. It’s part of building credit and as your creditworthiness increases, your chances of qualifying for bigger loans also increase.
As much as the loan will help to boost your business, it’s also important to know that loans are liabilities. Before you go ahead and borrow, it’s imperative to make sure you have a solid reason to do so. Does the survival of the business depends on it? Will extra running capital increase customers and lead to a higher ROI in the long run? Do you really need to borrow or are there other venues to raise capital? Will the business comfortably manage to pay the loan and clear it off within the required time? These are some of the most important questions to answer before getting a loan for your business.
2. Shop Around for the Best Loan Provider
Thanks to review sites and the power of search engines such as Google, finding a lender for all your business needs has never been easier. Whether it’s for your business needs, personal needs or other expenses, it’s imperative to find a lender who will guide you, support you, and walk with you in your journey to success in business. As hinted earlier, not all lenders are equal, especially when it comes to business loans. Some require too much documentation, whereas others will have very high-interest rates. Others have extreme punitive measures in place for issues such as missed payments, delinquencies, and defaults. The right loan for your business is a loan that you get from a reputable and experienced lender who provides great customer service and offers various loans with favorable interest rates.
3. Terms of the Loan and Costs
In your search for the best business loan, it’s important to consider calculating the overall cost of the loan. Loans attract interest rates and some even come with hidden charges attached to them. These are all the more reasons to have a sit down with your financial provider and have them calculate to you all the costs. For small businesses, there are various options that you may find worth considering if the available loans from banks and lending institutions prove to be too high. First, you have the option of finding an investor. The best thing about determined investors is that they can do more than just fund your business. Some may introduce you to networks of opportunities, mentor you, and coach you. The second option involves borrowing running capital from crowdfunding, relatives, or friends. Loans from the latter option will attract minimal rates, but it may not be a sustainable option.
4. Consider Collateral
For small startup business loans, it may be wise to consider providing collateral to the lender. This is especially the case if you’re seeking a large sum of money. Collateral simply means providing something of value, on which lenders can claim a lien on, which allows them the right to sell it to redeem their losses should you default or can’t make your payments in time. Most financial institutions accept real estate property, land, a car/s, office equipment, and similar assets as collateral. These are the types of loans commonly referred to as secured loans. With a secured loan, you have higher chances of getting a better deal in terms of interest rates and the loan term. It can also be a great option if your credit rating is low, not forgetting that the lender feels more at ease when they know they can always recover their money back through the collateral you provided. However, it may not be the best option if you’re uncertain that you’ll manage to repay the debt as you could lose your property.
Before committing yourself into a loan, it’s imperative to read the fine print. Understanding the loan agreement and terms of the loans is a critical aspect that you need to pay close attention to. Loan agreements are legally binding and if they don’t make sense to you, you could always seek legal counsel before proceeding.