Well, you need money to make money and to crack a loan is surely a tricky task. The struggle is undeniably real and not to forget, exhausting! In the light of the above notion, managing to get hands on a loan is a decent option to kick-start or expand a venture.
However, it isn’t at all easy as it sounds while we also cannot deny the fact that it is one quick and easy way to get access to money. So, what needs to be done? We kid you not when we say that a business loan comes with a lot of baggage and requires serious planning on the seeker’s part. A miss here and there can really end up making you look like a laughing stock.
Let’s discuss some do’s and don’t s that must be taken into consideration before planning to get on board with it.
Do: Your Homework Well
Before you get into the technicalities and other details that accompanies any given loan, we believe it is best to do some homework on the subject itself. You should know about the loan you are opting for as to what exactly does it imply. Also, you must be able to differentiate between the types of loans so that you can make a better decision regarding which of them would work well with your current situation. For instance, if it is a business line of credit options (LOC) you are choosing, you should know how it is different than a traditional loan.
Do: Use a Trusted Lender
A lot has changed and so has the means to bag a loan. There are more options now than seeking a loan from a traditional source, i.e. a bank. This is something fortunate for the small business owners considering the fact that they are often turned down by these large institutions. However, that does not mean that you could just go and trust blindly on the alternative sources out there. So, when you do give this a shot, ensure that the lender enjoys a good, rock-solid reputation to make the entire process smoother.
Do: A Comparative Analysis
Just like you choose one dress after having going through a gazillion shops, choose the lender the same way. Any loose end would mean a downfall and a bucket full of regrets, ifs and buts. Hence, to avoid such an ugly scene and to get a loan with a good interest rate would require a bit of research on your part. We recommend on getting multiple quotes from different lenders and then picking the one which seem to align well with your aims and goals.
This can be done from the comfort of your home too. All you need is a good Internet connection and you can simply do so by one application on an online loan marketplace.
Do: Craft a Sensible Budget
In that desperation to get a loan, one might end up designing a budget which would look less of it and more of an exaggerated plan. If the budget fails to provide anything substantial that would instil a sense of confidence in the eyes of the investor, you ought to make some improvisations. Creating too-good-to-be-true hype about the product or service you are offering and speaking at length about potential in it won’t at all appeal the investors. For the lenders to really believe in your idea, they have to know the scope of the profit generation.
Do: Read and Understand the Terms and Conditions Thoroughly
We know it is super long, tiring and exceptionally boring. But, we can’t afford to leave it unattended. We advise you to go through the terms and conditions to have a better understanding of what you are putting yourself into. Since it is bound to be filled with a lot of legal jargon, we even recommend taking up some expert’s help. Reading through it will keep that potential financial headache or let’s call it a heartache, at bay in the longer run.
Do: Keep a Track of the Spending
Amidst all the chaos of being able to run a successful business, chores like bookkeeping can often take a backseat. It is human nature to have things neglected willingly despite being aware of the consequences! We, however, are here to remind you that it can bring in financial death. Not recording about where your finances go can make your business appear dark in a lender’s eye. Having absolutely no or missing out on any documentation raises doubt on your viability of paying back the loan you so earnestly are seeking.
Don’t: Focus on Interest Rate Only
It only seems that loan is just a number game. Allow us to tell you that it has more than interest rates for you to ponder over. You need to closely look into the overall costs that the loan is going to come with.
There are fees and expenses involved that impacts the actual cost of the loan. This is why we spoke earlier about getting multiple quotes.
To begin with, there is an application and processing fee followed by administration and technical evaluation charges that you would have to handle depending upon the type of loan. Furthermore, pay extra attention to the terms you are getting the loan at. In addition, know the degree of flexibility it comes with and what guarantee as a collateral you would need to provide.
Don’t: Take More Than One Loan
Getting yourself tied up in more than one loan is probably the worst decision one would ever make. Overextending the debt will be equal to putting your business and its success at a high risk. Over-borrowing can lead to affordability issues and a cycle of debt too hard to recover from.
Also, it can ruin your credit score and reduce your chances of getting a loan as investors run a credit check prior to a loan sanction. In addition, it can negatively impact your reputation and might make you look incapable at managing the finances.
Don’t: Take More Than You Need
If you are considering taking a loan, then make sure you only borrow the amount you need. This is one golden tip you should note down in your book of wisdom. To put it exactly, if it is $1000 you need to borrow, then stick to this amount and do not get it up to even a single penny more than this.
Don’t: Pay Another Loan With a Loan
Don’t get your feet into loan cycling. It is a term which is used to describe the habit of using loans to pay the existing ones. And, mind you, it shouldn’t even be your last resort! Because, once you get shackled into a chain of high interest debt, it is very difficult to break free. You get so much into interest rather than having the principal amount reduced. As a result, you, your business and of course, the reputation becomes an open platform for ridicule.
Don’t: Over or Underestimate:
Okay, so here’s the thing to strictly live by when you are dealing with a business loan. Do not underestimate the expenses. At the same time, do not overestimate the income you are making. Strike a balance because it is the key to success here! Get them right by carefully formulating the budget and reviewing the financial forecast.
Don’t: Forget to Pay that Tax
Running a business can be very challenging and taxes in the middle of operations can be left unpaid unintentionally. However, this forgetfulness can cause a ripple effect and can be a big hurdle when you set off to get the loan sanctioned.
Conclusion:
It is crucial that you, as a business owner educate yourself on tax rates, deadlines and penalties as per the laws of your country. Save yourself from the trouble and honor the tax obligations before it gets too late!
