The Dos and Don’ts of Business Loans
When are starting a business, it is normal to think about the most viable sources of the capital. In many instances, there may be a million and one ideas that pop up in mind. A business loan will definitely make the list of the viable sources of capital. While a business loan is a great option, it is prudent to have in mind that there are requirements wanted by lenders.
Arguably, it can be difficult to choose from the multiple loan options available to small business owners. For entrepreneurs in the US, there are SBA loans, conventional bank loans, online working capital loans, and peer-to-peer loans. In this article, we want to highlight the dos and don’ts that you should keep in mind when searching for a business loan.
DO use a reputable lender
Nowadays, it is not necessary to rely solely on the bank to get a business loan in the US. Notably, large financial institutions are notorious for turning away small business owners. Perhaps it is because they tend to believe that a small business owner will not be able to repay the loan. Therefore, it is prudent to ensure that you choose the lender that has a rock-solid reputation of giving loans to small businesses.
DO borrow only what you need
It is exciting news to hear that a lender can give more than what you want as a loan. However, it is wise to go for only what you need. If you get a higher amount than you planned initially, there are higher chances that you will misuse the surplus amount. Obviously, that is because you did not have a plan of how to use the amount before acquiring it.
Do create a real budget
It is essential to have a budget for everything you want to achieve with a business loan. Actually, most some lenders may not give you a business loan without a clear indication of how you want to use the money. Nonetheless, ensure that the budget is realistic and you can justify the amount for each item. Our financial advisors argue that it is important to understand that lenders are not interested in your business idea. Rather, they want to maximize their profit margins and may not be willing to invest money into a business with exaggerated financial needs.
Do have extra funds
It is crucial to raise some money before going for a business loan. In fact, most lenders may require a person to raise a certain percentage of the loan they want. Even if your lender of choice may be willing to give a 100% of the loan, it is wise to raise some money before applying for a business loan. For instance, you should make sure that you have enough funds to pay business bills for the first six months. This way, it is possible to service the loan.
DO NOT stress about finances
Even though raising money to run a business may be daunting, avoid being stressed about finances. The first thing you should be focused on is building profit and being able to repay the loan. Therefore, the ideal thing to do is to focus on marketing and bringing in more clients. With stress, achieving this may not be possible. Moreover, focusing on bringing in more business will give you freedom and confidence to focus on your dreams.
DO NOT take more than one loan at a time
Having multiple loans at the same time is not a good financial move. It is wise if you only take out one loan at a time. Having more than one business loan can put your business at risk. It is tempting to apply for as many loans as possible. However, repaying the loans simultaneously will naturally prove to be difficult. Do not forget that failure to repay the loan as indicated by the lender can hurt your credit score.
DO NOT Pay Back the loan Too Fast
A quick repayment of a business loan is an indication that you may not have needed it in the first place. Moreover, repaying the loan too quickly can harm your business by leaving you short of available funds to boost the business. It is crucial to stick to the repayment agreement that you made with the lender at the time of applying for the loan. This does not rule out the fact that you can make a lump sum repayment. However, this should never be within a short period after acquiring the loan.
DO NOT Just Focus on One Financial Institution
Lenders are like any other retailers. You are not obligated to buy all your goods from a particular retailer. This implies that you should compare different financial institutions offering business loans and choose the one with the best terms. Diversifying your banking relationships is a benefit to any business. This is because sticking to one lender for all your financial needs may affect the business should it hit a bump.
If you would like to get more insights regarding the dos and don’ts of business loans, contact us. Our experts have many tips that can help you make the right decisions when it comes to applying for business loans.
