Still, determining which small business loan to go for is far from easy. With that in mind, here are five factors you have to consider when choosing the right small business loan for your startup.
What do you need the money for?
The first thing you need to determine is – what do you need the money for? For instance, you might want to hire more staff, buy more inventory, get new equipment or refinance an old debt. Apart from this, you may need access to working capital (covering payrolls or paying expenses and rent). Lastly, you may want to expand by starting a new office or adding more branches to your business. Either way, it’s important to determine the purpose in order to see the ROI that will come from this loan.
How much money do you need?
Another thing you should pinpoint is the amount of money that you need. This is another reason why it’s important that you first know the main purpose of applying for a loan.
The size of the loan may determine the difficulty you’ll encounter in order to get approved for it, as well as the interest rate.
Most importantly, it will also determine the type of lender that you have to turn to, seeing as how some have the cap that might be too low for what you need.
When do you need the money?
Traditional lenders and credit unions may take a while to process all your paperwork and make an estimate of your ability to pay them back. Unfortunately, this doesn’t favor those who need the money right away.
For this reason alone, the question of how fast you need the money may play a pivotal role in your decision-making process. It’s also good to know that the loan you’ve applied for can be paid off in 6 to 18 months, seeing as how it will be one less thing to worry about.
Do you have any collateral to borrow against?
It’s much easier to get a loan if you have a collateral to borrow against. In this way, the lender will feel more at ease, knowing full well that you have the means to pay them back, even in the worst-case scenario. On the other hand, getting yet another mortgage may not be in your best interest, particularly in the situation where you’re already at the head of a sole proprietorship. Instead, you might want to explore the option of caveat loans instead.
What’s your credit rating?
At the end of the day, your credit rating is the main determiner on which lenders may estimate how trustworthy you are. Keep in mind that it’s probably for the best if you were to start working on your credit rating before you actually need a loan.
Even if you’ve made an oversight here, all’s not lost. First of all, there are more than several methods to fix your credit rating and raise your FICO score in a short period of time. If not, there are some lenders that specialize in providing high-interest rate loans to those with bad credit.
Conclusion
Even though the amount of money you need isn’t that great, this doesn’t mean that this task should be underestimated. For a small business, every single dollar counts, which is why a 0.5 percent lower interest rate and the ability to get the money several days earlier may make all the difference.
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