Tips for finding the best loan for your business
Finding best loan: Someone who has been the part of the start-up businesses would know the difficulties associated with finding the funds for the business. You need funds not only to expand the business but also to manage the operational costs. Sometimes, you may see a surge in the demand for your products and you may not have the funds to meet that demand.
To meet the needs you will often have to look outside for money. Unfortunately, it is not even easy to get the loan from the banks. More often than not, the loan processes are slow and risky as well. Sometimes the need is too urgent that it leads to desperation. This is the time when the business owners end up making wrong loan decisions. If you are a business owner in need of funds, here are some ways to find the best loan for your business.
Review your finances; evaluate your needs
Before you start looking out for funds from the external sources, make sure that you thoroughly check your finances. This will help you identify if you are in the position to get the approval for the loan. Most of the lenders will require some sort of assurance. They will see if your financial trajectory is strong and if you will be in the position to make the repayment.
To ensure that your record keeping is perfect, make use of the best bookkeeping tools. These tools will help you keep up to date record of your expenses, income, and business performance. Make sure that you keep your business and personal finances separate. This will help you outline the financial position of your business in a better way. When you start your business, get it registered and have a bank account in its name.
Borrowing from friends, family, and relatives
When you are starting your business, borrowing from the friends and family may seem pretty reasonable. It is also easier to get the money from them as they would give it to you without any documentation. And sometimes even without guarantees. The good thing is that they trust you and are ready to support you.
Borrowing money from the family and friends also has certain disadvantages. First of all, you may not get all the money you need as they may have limited funds. Secondly, digging into the family savings and spending it all on your business is not a good idea. As you will require some backup.
It is best to not take all the money from the family. Look for funds from other sources is a better proposition.
Be careful with credit cards
Using your credit card for business is so easy. They are right at your disposal and you can use them anytime you want to. A lot of start-up owners exhaust their credit cards for business funding. But besides easy access, there is nothing much to gain from it.
The credit line on your card may not be enough to provide the funds you need. Secondly, those who use more than 50% of the credit limit on the card also run the risk of getting the credit scores reduced. With the reduced credit score, you may face challenges while applying for the loan in future. Also, a lower score means higher interest rates.
Do not use your credit card unless you absolutely need it. While you may be tempted to use the card as there is easy access, try not to.
The Bank Loan
If you could get the loan from the bank, there is nothing better than that. In fact, in the past, the only option to fund your business was through the loan from the bank. But the problem is that getting the loan from a bank is not all that easy.
The banks follow strict guidelines and there is a lot of paperwork involved. So, you may require frequent visits to the bank and even then there is no guarantee that your loan will be approved. The interest rate on the loan from the banks is much lower as compared to other sources. But the banks are willing to give a large sum of loans to larger corporations as they earn more profit from it. Therefore, startups and small businesses are not really their priority.
Getting the bank loan becomes more difficult for the new businesses. They do not have any track record or strong financial performance. Therefore, the banks are not confident about giving them a loan.
Online and other lenders
The number of startup owners has increased tremendously in the last few years. These entrepreneurs are always looking for funds from external sources. This has given birth to the new age lenders. These leaders realized that the entrepreneurs would not often get loans from the banks. Thus they found the opportunity in this business. Getting loans from online and other such lenders are easy. Some of them even process the loan request in less than 24 hours.
The biggest drawback of taking a loan from such financial institutions is that the rate of interest is very high. Sometimes the rate of interest is as high as 24% per year.
The point is that certain businesses cannot get the traditional loans as they do not have the track record. For them, applying for the loans from such vendors is the only option.
One can also go for the caveat loan which is secured against property. The interest rate is usually lower in such cases.