Carolin Petterson, WED | A lot of business owners dread taking out a loan. It’s a long-term commitment and it’s hard to plan business decision that far off. However, the financial industry is indispensable for the economy as a whole and borrowing money is often the only way to realize your dreams and start the company you’ve always wanted.
A lot of the issues that come up around borrowing money can be solved just by choosing the right loan for your needs. This sounds easy, but it actually isn’t, because companies have a lot of moving parts and tend to grow and change pretty fast.
How much money do you need?
This is the first and the most important thing to figure out. The size of the loan will determine the length of your obligations and the rates that you’ll need to pay as well. It’s always more difficult than it might seem, because there are expenses that you can’t predict and that multiply beyond your control.
It’s always best to borrow a bit more than you need at the moment in order to meet the needs that you didn’t count on. The general rule is to go 10 percent beyond your initial plan.
How fast do you need it?
It’s also imperative to consider how fast you need the money. The realities of running a small startup can be rather pressing and stressful, and getting a traditional bank loan usually takes time and quite a lot of paperwork.
Small businesses often need to have access to funds right away in order to deal with particular expenses that have come up. If this is the case for your company, it might be a better idea to get a credit line that allows you to borrow money right away at all times and pay the rates only for the amount you needed.
What do you need the money for?
The ways the loan is going to be used can also affect the rates and the approval procedure dramatically. You need to have a clear idea of how the loan will be useful to you and devise a business plan based on that consideration.
There are start up business loans designed for creating a small business you should consider. They come with a payment plan that allows business owners to get on their feet first and start repaying the loan once the startup is established.
Do you have a credit score?
A credit score is a number that determines how safe it is for the banks to lend you money. It’s based on how diligent you are with paying your bills. It often happens that small business owners don’t have a score at all. Those who have never taken out a loan have no record to be assessed, and even though it seems like the best possible position to be in, it can be a problem for the bank.
It’s best to take out a few small loans and repay them on time in order to establish your credibility. It takes time, but it’s the most effective option in the long-run.
Are you eligible for grants?
There are government grants available that are designed to help small businesses. Those grants are usually available for particular industries. Business owners should consult their financial advisors in order to find out the details about such propositions.
Have in mind that these grants could be especially helpful for businesses that don’t have enough savings or access to funds, but the procedure for obtaining the grants might be even more complicated and rigorous than with dealing with a bank.
How to get out?
Small businesses are reluctant to take out loans because they are a long-term engagement that might even outlast the business itself. That’s why it’s imperative for a business owner to have an option of getting out of the loan ahead of time if they have the resources to do so.
This is a feature that a loan applicant needs to consider with care because it usually comes with certain additional fees, and they need to decide whether the fees are worth it.
Choosing a loan is a complicated and important task and it needs to be done with consideration about the future of the company in mind. A small startup should always apply for loans that will allow it to establish a business practice before paying it back.