What To Consider Before Applying For A Business Loan
Whether you are a small business owner or operate a large multinational corporation
there are numerous factors to consider before applying for a loan for their business. Taking these factors into consideration can avoid any issues later on and ensure that you receive the best business loan for your situation.
What are you going to use the loan for?
When applying for a business loan banks or other lenders will need to have an idea of the purpose of the loan, and how this impacts on your overall business strategy and direction. For example, is this loan part of an expansion plan or to acquire additional inventory? The specific purpose of the loan will also contribute to the perceived risk of granting this loan from the perspective of banks and other lenders, so it is important to clearly define the purpose of the loan and present a straightforward yet sufficiently detailed application to minimise risk and increase the chance of obtaining this business loan.
What will be the repayment period?
Loans for business vary depending on the lender, amount of the loan and duration of repayment period. There are interest rates and fees that need to be calculated as part of the cost of the loan. It is a good strategy to talk to multiple lenders and 'shop around' to ensure that you receive a fair repayment strategy that falls in line with your budget and within your capacity to repay within the planned timeframe. All the relevant business stakeholders must be made aware of the terms of the loan agreement including options to pay off the business loan early and whether late fees or other additional rules and guidelines apply.
Do you require a guarantor?
It is very possible that a bank will require a guarantor before granting a business loan, particularly if you are a small business with little to no history of running your own business or with a less than favourable credit rating. Guarantors will be putting their personal assets on the line to assist you with acquiring your business loan, so there must be full transparency regarding the complete terms of the loan and its purpose before an agreement is reached between your business and the guarantor. The best thing to do is consult the bank early in the process and determine the necessity of a guarantor for your business loan and the specific requirements that accompany this.