Three Things to Decide Before Applying for a Loan

Three Things to Decide Before Applying for a Loan

- in Finance
131
Comments Off on Three Things to Decide Before Applying for a Loan

Before applying for a loan, business owners need to carefully weigh each option and compose a business plan that informs any possible lenders about each detail of the business venture. This will not only improve your chances of receiving the loan based on organisation and preparedness but allow the lender to provide you with the correct financial advice for your situation as well. There are a few major decisions that business owners need to make prior to deciding which lender from which to accept a loan.

How Much You Need

Whether you are expanding your business or buying a different business, the most important determination you will make is how much of a business loan you need. Make sure that you take into account all set business expenses and then account for any possible unforeseen expenses. It may be wise for business owners to enter the projected amount into an online repayment calculator to find out what the time frame for repayment will be. Additionally, try to determine if your business plans on needing the money from the loan up front or over time because this will dictate important factors such as interest as well as repayment options.

Level of Security

Consider the level of security that this business venture loan needs. If you have major assets that you plan to use against a loan, consider listing all values and determining which assets you are going to use. Usually, acceptable assets fall into four major categories: residential, commercial, and rural property and business assets. If you don’t have major assets, consider an unsecured loan that will provide necessary funding but may come at a higher interest rate. Make sure that if you are using your assets to get a secured loan, you will absolutely be able to repay the lender on time because they are legally allowed to seize any property upon failure of payment.

Interest Rate

Everyone understands that with any loan comes an interest rate. Loan interest falls into two categories and is either a variable rate or a fixed rate. The difference is that with a variable rate, the borrower bears the risk of the interest rate moving but with a fixed rate, the lender takes on the risk and ensures that the rate will not change. Interest is a tricky area that determines major factors about your loan, such as stability of repayments, overall cost, and loan features. Most often, the choice between variable or fixed rate is based on how much cash flow your business generates once all expenses are paid for. Business owners should be sure to take into account all the features of the loan and not simply base a choice on a slightly better interest rate that may offer less flexibility.

About the author