Businesses need money to grow and a loan can be very helpful in achieving that goal. But not all business loans are the same and before you apply for one, you should explore multiple options, compare them and choose the one that makes the most sense to your needs.
There are some keys to find the perfect financial aid that you should take into account such as terms, time limits and interest rates. Some tools, like a business loan calculator will help you make a better and more informed decision.
Getting started with a business loan
First things first. Not every business needs a loan and not all loans are for every business. And most important of all, if your business doesn’t have an actual need for a loan, then you shouldn’t take one.
Why? Because a business loan is meant to help you grow and in order to do that you need a plan and a goal. Now, if you already have these elements, you’ve revised your finances, you are aware of how much money you need and how much money you can spare every loan payday, it’s time to shop around for the best option.
Traditional banks offer business loans, but technology has widened your options to apply for one. Financial Technology companies, also known as fintechs, are becoming more common by the hour and a simple internet search will give you hundreds of options. But not everything that shines is gold and not every finance institution will work for you.
Banking is not necessarily out of the question, you can ask for information and take it into account, but lighter and agile companies such as fintechs can give you better terms since their operation is cheaper. So ask around with financial providers, banks, credit unions or online loans providers and consider:
- Amount needed. How much money do you needto fulfill your goal?
- Amount offered. Sometimes, smaller companies can’t meet big loan requests.
- Term. How long are you going to pay for it?
- Interest rates. Basically, how expensive the money will be.
- Guarantees required. This is something the financial institution can take as payment in case you don’t pay, such as properties. If a “company” asks for upfront cash as a guarantee, you should walk away before they scam you.
The combination of this checklist will give you a clear idea of who is the better option for you. If your business plan can’t afford big monthly payments, then you can go for a longer term but higher interest rates. It’s all about balance and what fits your ideas.
Before you sign…
Don’t get seduced so easily by the first offer or a juicy one without doing your research and lying all cards on the table. It’s easy to be impressed but you’ll want to make a decision like this with a cold head.
Information is key when it comes to signing a paper, so before you do it, take a look into the heart of the company:
- Google it. Yeah, it seems very basic but social media and complaint sites can give you a really good idea of who you’re dealing with.
- The Financial Conduct Authority (FCA) is there for a reason, to protect you, so search for official authorization on their website.
- Check out a business loan calculator, this way you can tell how much you will pay every month.
- Financial projections of your business including new earnings and loan payments will give you an idea of your cash flow.
- Contingency plan. Write down, from day one, an alternative way to make money, a different business model that can be based on what you already have working for you.
If you are unsure on how much you will pay, a business loan calculator will help you figure things out. You can use it at the same time you are writing your initial business plan so you can adjust your perspectives accordingly. Make an informed and smart choice to grow your business and leave surprises out.