It doesn’t matter if you’re starting a business from scratch or looking for ways to grow your existing entity, there’s a good chance you’ll realize the importance of securing funding. While there are many ways of doing so, a small business loan could be best.
But before you contact a lender, complete an application, and sign on the dotted line, there are some things you first need to think about. Here are five of the most important details:
1. Type of Loan
There is more than one type of small business loan, so you’ll want to learn more about the finer details of each before making a final decision on which is best.
For example, a traditional term loan may make the most sense for your business, while an equipment loan could be the perfect solution for another.
Find a lender that offers many types of small business loans, as this will allow you to confidently make a decision.
2. The Amount You Need to Borrow
You don’t want to borrow too much money, but at the same time you don’t want to sell yourself short. Have a clear idea of how much you need to borrow before you begin the process.
Also, keep in mind that you may not qualify to borrow as much as you want, so you’ll have to get creative with your approach to financing.
3. Repayment Terms
How long do you have to repay the loan? Are you more interested in a shorter term or longer term?
With a short term loan, you won’t be saddled by the debt for an extended period of time. Also, you’re more likely to secure the lowest possible interest rate. However, the shorter the term the higher your monthly payment.
With a longer term, you can secure a lower monthly payment, but you’ll pay more in interest over the life of the loan.
Once you choose a loan type, compare available terms to determine which is best for you both now and in the future.
4. Down Payment
With some types of small business loan, a down payment may be required. Maybe you can afford this, maybe you can’t. Just make sure you have a clear idea of whether or not it’s required before you move too far down the road.
If you’re going to make a down payment, be sure that it won’t put your company’s financial health at risk.
5. The Lender
There are hundreds upon hundreds of small business loan lenders, all of which would love nothing more than to offer you the money you need. But before you begin to think they’re all the same, do your homework.
Lenders vary in many ways, from the interest rates they offer to the customer service they provide – and that’s just the start.
If you’re strongly considering a small business loan, focus on these five details before you do anything else. As you collect more information, you’ll come to better understand which type is best for you and your company.