Thinking of getting a new office space, more equipment, investing in real estate, or simply financing recurring expenditure? Keep in mind that a business loan is just one of the many funding options you can explore. There is ‘everything serious’ about taking a business loan. Its long term effect on the productivity of your business should make you consider the following before even applying for one:
Must it be a business loan and how urgent is it?
The urgency of your funding need will definitely affect your choice of business funding. Well, before you settle for a business loan, try exploring other alternatives like boot-strapping crowd funding, venture capital funding, private investors, and even loans from family and friends.
If your ‘exploration’ takes you back to the business loan option, decide on whether or not you can cope with the long underwriting process and demands of traditional lenders or the high interest rates of non-traditional lenders?
What collateral do you have to give in exchange?
Most lenders would demand some form of collateral before approving your loan application. They understand that investing in your business is a risk for which they must have some measure of security. What assets are you willing to exchange that will be commensurate with the loan you are applying for?
How healthy is your cash flow?
Whether you decide to opt for a traditional or non-traditional lender, your cash flow will be brought under scrutiny. Though a healthy cash flow doesn’t necessarily translate to higher profits in business, it goes a long way in convincing would-be lenders of your ability to service the loan as at when due.
Who’s offering the best loan term?
Believe it or not, many loan options will be thrown in your face once you express your interest in securing a business loan. However, don’t get carried away by the perks of many offers which are indeed Trojan horses just waiting to be received. If you feel you need a financial advisor in deciding on what loan to apply for, by all means, get one. Never sign the dotted lines without properly assessing the terms of the loan and being certain that it’s the best loan for your business.
If you can’t pay back, what happens?
Believe it or not, something can go wrong with even the best of plans. Make sure you really understand and can cope with the consequences of not being able to service your loans as at when due. Keep in mind that the collateral is not a primary source of repayment. Therefore, the productivity of your business will be ultimately affected.
Still thinking of taking that business loan?