(ThyBlackMan.com) When it comes to financing a new business concept, you need to make sure you look at all the options on the table. Any errors could result in a loan damaging your company. With that in mind, we’ve created a list of things you need to consider before accepting any form of borrowing. At the end of the day, you might have to pay for some professional advice if you’re unsure. However, the information on this page should assist you in making an educated decision that’s right for your operation. The last thing anyone wants is to end up with an expensive debt they can’t afford to pay. So, you just need to use some of the points on this page to ensure you leave no stone unturned.
How much do you need to borrow?
Before you get a business loan, you need to determine how much you need from the investor, this will mean taking some time and thinking, as well as writing down, what you are looking for and what that will mean for the future of your business. Are you looking to get a new concept off the ground, or do you plan to use the cash for expansion?
Either way, you’ll need to spend time creating a document that highlights how you will spend the funds. That should mean you never borrow too little or too much. Just remember that any estimates you receive could change, and quotes could increase. So, it’s always sensible to seek slightly more cash than you require. However, don’t make the mistake of getting thousands more than you need because you’ll have to deal with the extra debt which could hurt your credit score. Make sure your paper work is in order before looking to get a business loan
Are there any profits within the business?
Sometimes people borrow money when there’s no need to do so. If you have profit within the firm, you could use those funds instead. Taking out a loan is all well and good. However, you’ll always pay back more than you receive. So, it doesn’t make sense to pay all that interest if you have the cash to hand. Take a look at your operation and see if it’s possible to get the cash without a loan. If that’s possible, you should probably use your profits this time and wait a while until you need to source a cash injection.
How quickly will you see a healthy return?
If you think the money will provide a healthy return in a matter of weeks, you can often get lower interest rates on your loan. If you need a year or more to pay the money back, you’ll end up with higher rates. It’s vital that you can let lenders know how fast you expect to return the investment. You don’t want to apply for a loan over the course of three years if you could settle it in only a few months. Your goal is to find the lowest interest rates possible, and you should never pay more than is necessary. Again, if you struggle with that issue, you can always employ the services of a business advisor. There are plenty of professionals out there who could give you the information you require.
Are you willing to give part of your business away for the money?
You need to decide between borrowing money outright or selling a percentage of your business. If you want to keep control over the operation, you should never agree to part with more than 49%. However, it’s sometimes valuable to get an experienced investor on-side. You might determine that selling 20% of your company for the money you need is better than getting into debt. You wouldn’t have to pay the cash back, but the person who lends the money would become part of your business. So, it would be in their interests for the company to succeed. Otherwise, they would lose their investment.
Have you compared multiple lenders?
Nobody wants to pay over the odds to borrow money. For that reason, it’s essential that you compare business loan quotes from multiple lenders. Thankfully, there are many websites you can use to make that process easier. You don’t have to contact lots of different companies because they are all mentioned on comparison sites. You just need to enter all your details and let the computers do that hard work. Those sites should come back to you with the best offers from lenders around the world. So, you’ll never miss a lucrative deal, and you shouldn’t end up with anything less than perfect.
Do you need loan protection?
In most instances, business owners can apply for a type of insurance when taking out a loan. That covers them in situations where they can’t afford to make repayments. Depending on the lender you select, it’s possible that interest rates will increase if you choose protection. That is because it shows the bank that you’re not 100% confident in your ability to make the repayments. For the best results, you need to apply for a loan without protection and then add the insurance after. Always use an impartial specialist for the cover, and never buy it from the lender who released the funds.
Have you read the small print?
Small print can hide some sneaky terms and conditions that could affect your operation. So, you need to pay a legal expert to assess any paperwork before you sign. You should have a lawyer for your company, and so you just need to drop any contracts into their office. It shouldn’t take more than a couple of days for them to read the terms and offer their opinions. At the end of the day, the final decisions are always down to you. However, you should never ignore advice provided by your legal team.
If you consider all those things when looking to finance your business, nothing can go wrong. Failure to take heed could mean you end up with a less than perfect deal. For people who are just starting out, that could ruin their ambitions. If they struggle to repay the loan, it’s possible their business could crumble in a matter of months. Do yourself a favor and make sure you always read the small print and seek professional advice before borrowing anything.
Staff Writer; Greg Jones