What To Consider Before Taking Out A Business Loan

The entrepreneurial world is a dark and murky world, right? You will probably receive orders for your product, deliver them but payments will be delayed. This leads to tying up of your core capital. It might create a chain reaction that cripples your operation.

Alternatively, you may be faced with a need to buy new equipment or inventory to ramp up production. You may resort to financing from banks which require collateral as security for the loan. It is imperative for you to consider some factors before taking that business loan. Here are some of the factors to consider:

Purpose of The Loan

A common story in the business world is companies falling on hard times due to incurring debt. Once you decide you need a loan, a clear strategy has to be in place for the use of that loan. This will prevent you from spending the money on unnecessary items, entertainment expenses or projects.

With a clear strategy on how you’re going to spend the money, your goals will be achieved. Repayments of the loan won’t be hard since the equipment or machinery was meant to drive the growth of the company.

Repayment Plan

Before signing on the dotted lines to get the loan, have a repayment plan. The answer to this is relatively simple. It would be illogical to take a loan for the business without a framework of how you’re going to repay it. Doing that would be akin to suicide for the business.

Loan repayments have caused huge businesses to collapse, don’t let your business be a statistic.

Collateral

As is common practice in the lending business, collateral is requested as security for your loan. The lending institution will hold the property until you finish repaying the loan. In the event, you are unable to pay off the loan they will dispose of the property by way of auction.

When deciding what item the bank will have as collateral, ensure you don’t give out property whose worth is way above the loan amount. If your circumstances change and you’re unable to pay the loan, the bank will be the happiest of both parties.

Suitable Lenders

With the advent of modern technology, you are able to shop around for the most suitable loan for your business. Competition is rife in the banking sector, make sure you make it work for you and your business.

Look around and find the lender with the best terms or debt consolidation options. You don’t have to rely on banks these days. The number of non-bank lenders has risen within the last few years, check them out. There are also alternative and microlenders such as indiegogo and Kickstarter where you can get customers to fund your project or goal.

Credit Score

Generally, banks give money based on your credit score. Before embarking on requesting for a loan find out your credit score rating. This will determine whether you qualify for a loan and how much is the maximum amount you can receive.

If you have never defaulted on a loan nor had late payments, your credit score rating will be acceptable for most lending institutions.

Image from Smart Living Daily

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