Factors to Consider When Shopping for a Business Loan
When it comes to start-up business loans, you’ll run into no shortage of financial support. However, coming across a fair deal doesn’t mean you can overlook its terms and conditions.
Perhaps you’ll accumulate a handsome profit but become unable to renew your loan contract or have to pay more in administrative fees than you initially expected. Before jumping into the loan application process, it’s essential that you compare, contrast, and contemplate.
Think About Future Interest Rates
Suppose you’ve narrowed your loan selection down to two final contenders. If one stipulates a higher interest rate than the other, the choice may appear obvious—the lower rate will reduce monthly payments.
However, your loan terms will dictate whether this interest rate rises or falls in the near future. The higher-rate loan, for instance, may come with a five-year fixed period, whereas the lower-rate loan may transition into a variable arrangement in just two years. Thus, the latter becomes subject to fluctuating market rates sooner.
When browsing loan contracts, look beyond the initial offer. Consider whether you’ll still be able to afford your monthly payments as they change down the line.
Read Between the Lines but Look Into the Bigger Picture
Similar loan terms won’t necessarily provide identical features. For example, a specific loan might offer a line of credit, whereas another might supply a business overdraft. While added features may look attractive on paper, they typically come with additional costs.
If you’re considering a rider or add-on, weigh their impact on your overall loan. Can you do without them? Are they a make-or-break addition to your contract?
Always take on a broader perspective when scrutinising your loan package. Focusing on its most attractive features and neglecting to weigh additional demands can give you tunnel vision.
Familiarise Yourself with Lending Criteria
Different lenders will pose unique eligibility criteria, which will determine whether you qualify for a specific loan product. Research lending criteria beforehand instead of submitting as many applications to various lenders as possible.
Multiple applications can impact your credit rating, as lenders will take it to mean that you’re having a difficult time qualifying for a loan or line of credit. Thus, it’s best to determine with what a lender will consider “favourable financial health” or a “steady source of income.”
When comparing business loans, examine eligibility criteria the way you would the actual offer. You might discover that a large sum of money demands rigorous standards that you aren’t confident you’ll meet.
Comparing business loans isn’t just about zeroing in on how much you can borrow. Prioritise lender criteria, additional costs, and impactful riders as much as you would the total loan amount. Take your company’s circumstances into consideration before you select your loan terms and pursue an application.
At Business Loan Experts, we know better than anyone that the planning stage is the backbone to success. We provide small business loans to growing enterprises that allow for total control over your budget and a boost in your profit. Apply today to achieve cost savings and increase your bottom line.