If you own a business, you may need to apply for business loans at some point of time. While loans are somewhat necessary for business growth, taking loans with the wrong intent can make your business fail and can get you into a vicious debt cycle.
In this article, I have noted and explained 5 important factors to consider when applying for business loans.
Lend only what you can pay back
When going for a commercial loan, be sure not to borrow more than you can afford to pay back.
For example, if they allow you to borrow $20,000 and place your properties as collateral, but you only need $10000, borrowing too much can lead to your property loss if you are unable to repay the entire loan. Above everything, if you feel that the interest rates are high, be sure to check if your business will be able to pay those interest rates. If you can, apply for subsidized loans. Here in India, Micro, Small and Medium enterprises can apply for subsidized loans from Government bodies. I have written an article about this.
Avoid multiple loans
With time you will be tempted to get as much money as possible. This temptation is great if you are progressing quickly. But if possible, try to find other ways to gain money — like selling shares of the business. Applying for multiple loans is a terrible idea. Not only these multiple loans make more problematic for you to pay, but it also affects your company’s credit score.
Cash loans are hazardous. Be sure to borrow only from legal sources. Sidesources may or may not do legal actions on you or your company, but they may hurt you a lot in other ways if you fail to pay your due.
Compare multiple lenders
Always take the time to shop around and check out your options before choosing a business lender. Some may offer lower rates than others and could also waive fees associated with the loan. One place may be able to fund the loan within an hour, or you may wait for days at another. Shop around to find the right commercial loan for you.
Know your debt paying capacity
Compile a list of every single debt you have when getting a commercial loan. This list includes your medical bills, credit card bills, mortgage payments, and more. With this list, you can determine your monthly expenses. Compare them to your monthly income. This comparison will help you ensure that you make the best possible decision for repaying your debt.
Now that you know more about business advances, you can determine whether you want to proceed with the process. You can give deep thought to whether a commercial loan is right for you. Just keep in mind the tips in this article to properly decide in the future and have all the information necessary to make good decisions about business cash advances.