Starting a business, whether small or big, can be challenging and risky. It always comes with the utmost need for funding. When starting out, you can seek funding from investors. As the business grows, you can turn to other lenders such as credit unions or banks.
Consider the following factors when looking for a small business loan to best suite your needs.
- Terms of the loan
Before appending your signature on the dotted line, you must understand all the terms and conditions of the loan. Because of the rapid growth of the small business loan sector, some unsavory characters are looking to defraud unsuspecting individuals. A creditor or lender can provide funding in a number of ways. Here is what you should consider.
- Factoring fee or APR – A lender agrees to pay a business owner some percentage of a client’s invoice. You should calculate the cost of factoring beforehand.
- Interest – Know how much interest you shall pay over the period of the loan.
- Payment structure – Ascertain whether the payments are fixed or will hike in later months.
- Prepayment penalty fees and origination fees – Check how these fees are factored into the loan’s true APR.
Bottom Line – Take your time to do all the calculations before accepting a loan.
- How the lender arrives at credit worthiness
Similar to other forms of loan or credit, not every underwriting is equally created. Most, if not all, small business lenders have numerous requirements. Some need proof that you have been in business for two to three years and your business generates a six-figure income at minimum. Others only require business owners to have been in business for six months. Another group provides loans based on available invoices rather than revenue.
Use the above criteria to determine which loan you qualify for to avoid a rejection of your application.
- The urgency of your funding
The need for urgent funding has a huge impact on a loan. Same day or next day funding attracts a steeper APR. This is because you have less time to look, shop and compare price points. The best thing is to get professional advice on merchant cash advances about the best time to look for a loan.
- The amount of funding you need
How much funding do you need? Do not forget to factor in fees. Ensure that the loan amount you need for the loan is within the lender’s available maximum amount. Anything contrary to this makes the loan not worth applying for.
- Quality customer service
In some instances, a reputable bank or local bank might offer the best fees. Nonetheless, as a small business owner, you should consider looking into customer service reviews. New entrants in the loan space might offer a more streamlined customer care service and quicker response time. Before settling for a small business loan, you should test customer service.
Based in Atlanta, Georgia, Grace Hartnett has been professionally writing since 2010. Grace writes about careers, business, and personal finance. You can talk to her to get sound advice on merchant cash advances.