Starting a small business takes startup money and working capital. Keeping a small business in operating condition often involves using small business loans to cover the daily expenses until the company can operate in the black. With so many lenders offering loans to small businesses, entrepreneurs need to choose loans worth their interest rates.
Why do you need the money?
Before you choose a business loan provider, decide why you need the funds. The lender will ask you to consider whether you are a high-risk borrower or one with the ability to pay back the loan on their terms. You’ll need to decide if the loan is to help grow your business or help it survive. Not all lenders will approve a loan just to keep the lights on.
How will the lender expect you to pay the loan?
Lenders want their borrowers to pay them back with interest. If you pay the loan early, a lender might charge you a fee to cover the lost interest. Learn about your lender’s payment expectations before you sign any papers.
Does the loan have enough money to cover your needs?
Rather than overloading your portfolio with several small loans, consider whether you are better off with a larger one that covers your needs. Having revolving credit might be helpful for some entrepreneurs, while others might want a simple loan for a flat amount.
Do you need to offer collateral?
If you have to offer collateral, what do you have to give up to get approval for the loan? Some lenders require the deed to your home or your car to cover the loan if you default. Lenders who want collateral see you as a risk, which could tell you something about your business, your credit score, and how much money you need.
Is the term too short, too long, or just right?
The best small business loan has a term that is just right. When it’s too long, you’ll have more interest to pay. If the terms are too short, you might have overwhelming monthly payments. Take time to decide how much you can afford to pay and make sure your lender can create a loan that fits your budget.
How many loans do you already have?
If you already have several loans, adding another might not be in your best interest. Your lender might be able to consolidate them, so you have one payment rather than three or four. Too many expenses can overwhelm a business and force it to shut down too soon.
Is the lender legitimate?
Research the lender to be sure you are dealing with a legitimate business. Fraudulent organizations try to take advantage of unsuspecting businesses that accidentally give up something valuable for nothing in return. Those same organizations often phish for sensitive data, like social security numbers and other private information.
Do your due diligence before you accept a small business loan. Be sure it satisfies your financial needs without overwhelming your prior commitments and expenses. The right loan is out there with a bit of research.