Things That You Should Consider When Taking Out a Small Business Loan

Small Business LoanBy Casandra Ramey

Taking out a small business loan is not to be taken lightly. It’s a major undertaking that is going to have serious implications on the borrower’s future.

Above all, a person should really only considering taking out a business loan if doing so is going to have a profoundly positive effect on their life. Interest rates on loans, even the lowest ones – are still relatively high by financial standards. And this means that anything you can definitely afford should be purchased in cash.

However, there are a variety of situations, such as buying a franchise or covering manufacturing costs in which borrowing money makes real sense. Just make sure that you fully think through the transaction before you commit. With that in mind, take a moment to review these important considerations when taking a business loan:

Bargaining May Be a Possibility
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Over the interest rate, that is. Most potential borrowers are wise to the importance of shopping around, but fewer realize that the interest rates quoted by the bank may be negotiable. In some cases, a lender may open with their standard industry rate, knowing full well that they can come down to a few decimal places. If you want to cut to the chase, you can ask to see the bank’s daily rate card, which should list the lowest rates available for any of their products.

Know What the Loan is Going to Cost You
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This is extremely important, if only for the fact that so few people actually go the extra mile in this department. Everyone knows that loans cost more than their face value – at least in terms of fees and interest. But in order to do any long-term financial planning, you need to know the real cost of this loan. Just multiply the monthly payment by the number of months over the life of the loan. Loans over long periods, with higher interest rates or with smaller down payments are going to cost exponentially more before it’s all said and done.

Affordability Must Always Trump Dreams and Aspirations
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A big purchase (and particularly starting a new business) can be an exciting – some might even say ‘emotional’ – experience. And why shouldn’t it be? This is, after all, one of the most monumental purchases that you are going to make in your lifetime. That being said, don’t let your dreams and desires cloud your objectivity. Bottom line: this needs to be a business that’s been well researched and that has a clear plan.

Shop Around for Your Lender
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These days, the number of lending institutions out there cutting loans is leading to some cut-throat competition. That’s great news for would-be borrowers. With that in mind, spend plenty of time shopping around for the right business loan (and one from the right lender) for your situation. You’ll probably find relatively little variance between interest rates, though banking facilities, customer service, etc. can vary considerably. Just remember, if all goes as planned, you’ll be working with this institution for years to come.

Casandra Ramey writes for Money Vista, a financial planning website that helps families and individuals on the road of financial stability and freedom.

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