If you’re a proud owner of a small business, you know that offers of business financing will always hover above you like a pregnant cloud. But this often comes with mixed feelings and a state of indecisiveness. On one hand, you’re awed at the availability of so many types of small business loans.
On the other hand, you’re skeptical, and rightly so — you wouldn’t want to be part of a large group of small business owners in America that simply can’t pay their debts. Fortunately for you, we’ve prepared the following tips to help with selecting the right small business financing option for your needs.
1. Take Your Time
As an entrepreneur who is on the hunt for suitable small business loans, you may sometimes feel like you’re running out of time. However, that’s often not the case. It’s totally OK to take things slow. The absolute worst thing you can do is to rush into this. Hurriedly picking a loan, only to find out that you selected an unsuitable one, can deal a devastating blow to your small business. Be patient and carefully evaluate all of your options as you navigate the process.
2. Do Your Due Diligence
More often than not, navigating loan options can be time-consuming or even confusing. To combat this, do your homework early on in the process. Check out your prospective lender’s website and/or paperwork to see if the company discloses the fees associated with loans. Then go a step further. Look up their Better Business Bureau (BBB) rating and membership information just to be sure.
3. Understand Your Business
Speaking of doing one’s homework, be sure to spend time evaluating your business and how lenders perceive you. On AnnualCreditReport.com you are entitled to a free annual credit report from each of the three credit reporting agencies. A quick credit check will help you understand your score, which is a crucial factor, but beyond that, you also need to have a grasp on your debt-to-equity ratio.
But why this ratio of all ratios, you wonder? Well, the debt-to-equity ratio is an important financial principle because it indicates the stability of a company and its ability to raise additional capital to grow. Put differently, it dictates that the more you rely on debt versus equity to finance your business, the more risk you face. So, the lower your debt-to-equity ratio, the higher the probability of your business actually surviving a financial crisis.
4. Consider the Repayment Terms
How long do you have until the repayment period kicks in? How are the repayment terms like? Do you have to wait until maturation to pay off the loan or maybe you can settle it early and flexibly? Before putting to paper on any loan deal, make sure you’ve had clear answers to all these questions.
While it’s easy for these details to seem insignificant in the fine print of a small business loan, they can save you hundreds or even thousands of dollars in the long run. Once again, do your due diligence.
5. Look at the Interest Rate
When it comes to picking the right loan for a small business, this is an absolute no-brainer. Failing to consider the interest rate is akin to signing an early death certificate for your otherwise promising business.
Your interest rate depends on a number of factors, including your credit score, repayment term, and the loan amount. Interest rates can be as low as 3.49 percent and as high as 29.99 percent or more. Typically, you’ll get the lowest rate when you have a good or excellent credit score and you choose the shortest repayment period possible. Having all these tiny-teeny details at the tip of your fingers can save you a lifetime of misery and failed business objectives.
Patience and Persistence Pays Off
When you’re taking out a business loan at the initial stages of your small business, you need to tread carefully and with your third-eye wide open. A wrong selection could lead to the worst conditions possible, like being unable to pay off the loan within the agreed period. Such situations can have disastrous ramifications for your business in the long haul. It’s always prudent to carefully study, inspect, and select the best loans for businesses with no credit so that your journey to becoming a mercurial entrepreneur is not impeded in any way. With that, we wish you best of luck going forward!