The plenty of ideas in your brain is the key to become a successful entrepreneur. Along with ideas, you will be in need of one more element which has the power of turning your dreams into reality. The next ingredient to prepare that perfect winning recipe is ‘Fund for Business’. Your ideas alone can’t make its journey towards being successful until and unless it is backed by adequate money. Your ideas are always in need of the fueling of funds.
Every small business owner is aware of the fact that ‘it needs money to earn money’. If you don’t have enough capital to self-fund your business, the next option left with you is to borrow the money. When it comes to borrowing, most of the business owners are found to be confused in choosing the right business loan for their business. In this article, we will make you familiar with some ways to find the best business loan for small business owners.
The Loan Amount
When you are looking for a business loan, you are to be specific about the loan amount. You must have a fair idea of how much of liquid fund you are looking for. It is important to be flexible and realistic while mentioning the desired loan amount in the loan application form. The lenders check the past records and the growth potentiality of your business.
The loan amount plays an important role in finalizing the best lender. If the loan amount sanctioned by your lender is too small, your needs may not be fulfilled. So before you apply for a small business loan, make sure the amount that can be provided by the lender.
The Cost of the Loan
When it comes to comparing loan options, most people compare only the interest rate and not the total cost of borrowing. The interest rate is certainly one of the major factors that determine the cost of borrowing but it is not the only one. One must ask the lender about the APR ( Annual Interest Rate). The APR of a loan is the amount includes all the fees and charges i.e. origination fee, documentation fee etc. Along with same, one must know the penalties too. While choosing any business loan, one must compare the costs in every aspect.
The Mode of Disbursal
Business loans generally come in two modes of disbursal. The first one is an installment loan and the next one is a line of credit. In the first mode of disbursal, the lender disburses the whole loan amount at once. The whole amount is deposited to the borrower’s bank account. On the contrary, a line of credit business loan is a revolving credit. One can withdraw any amount within the maximum credit limit at any time.
So, the mode of disbursal one prefers depends on the need of money. If you want a lump sum amount you can opt for an installment loan. In the case that you want the money in smaller parts, you should better opt for a line of credit. So before finalizing your business loan, you must ask about the mode of disbursal of the loan.
The Use of Fund
Most of the lenders are likely to ask you about the use of the fund borrowed. One has to be prepared with the favorable answer. The lender determines the amount of the loan depending on the use of it. If the lenders feel that the way you are using your money is good enough to earn a profit, then only they provide you with a loan for your business. So when you choose any lender for your business loan, make sure that they are hopeful with your business ideas and ready to help you financially. If not so, it is better to shift to the next lender.
The Collateral of the Loan
A business loan is a secured loan. One has to use any of his assets as collateral of the loan. To avail a business loan you have to collateralize any of the assets such as equipment, inventory, your business office, your residential property etc. Some of the lenders even accept the future revenue of your business i.e. future sales, or accounts receivables etc. Whatever of your asset you want to use as the security of your loan, your lender must be ready to accept it. If the lender you approach doesn’t accept your assets as collateral, you can move on to the next lender.
Your Business’s Sales Revenue
The sales revenue of your business must be considered while searching for business funding. The revenue of your business is the parameter to check the creditworthiness of your business. If your revenue is not up to the mark, the lenders will take you as a high-risk customer so they may impose a high rate of interest on your loan. In such scenarios, getting a loan in a competitive interest rate is a bit difficult. So if your business is in passing through such situations, you are to declare the fact in advance to find the best loan for your small business.
When you need a business loan at the initial stage of your business, you need to be very careful while choosing the loan for your business. A wrong selection may lead to worst conditions like being unable to pay off the loan. Such situations will have a long-term effect on your business. It is always better to study and find the best startup business loan for your business so that it supports you in the journey to become an established entrepreneur from a startup business owner.