Getting a business loan may look like a last resort for many new and existing business owners. Most people would rather save upfront than end up in debt, yet a loan can provide relief in all kinds of unexpected situations.
The best example? The recent coronavirus pandemic caused many business owners to struggle with bills and payrolls, so the government has brought in the PPP loans, which provided excellent rates and relief for those in need.
Now that the program has been stopped, you can still get a loan, but you will most likely need to get back to classic options, such as small business loans or cash advance loans. Choosing the best PPP loan alternative implies doing your homework, though.
So, what do you need to think about before applying?
Lender’s reputation
The lender’s reputation is critical. You may find some super simple and advantageous deals from unknown lenders, but you need to ensure there are no hidden terms or fees. A lender that does not check your credit score is a red flag – the same goes to those accepting bad credit.
Look again if the website is unprofessional and there is no physical address. Loan fees and unclear terms could expose you to a series of issues later. Plus, never take a loan from a lender putting pressure on you.
Type of loan
Like personal loans, you will find many options for small business loans. Some of the most popular options are traditional term loans, business lines of credit, equipment financing, merchant cash advance, business credit cards, and invoice factoring.
You can also opt for small business administration loans.
Collateral
Based on the size of the loan and the lender, you may or may not be asked for collateral. For example, if you go for equipment financing, the equipment will become the collateral. You need to sit down and think about it – would you like the idea of risking an asset?
Indeed, sometimes, collateral is the only option when looking for a big loan.
Repayment terms and conditions
This is one of the main considerations and one of the first things people will pay attention to. You want to know how much you will pay every month and how long the loan will last – make sure it is a comfortable amount of money or you risk defaulting.
You may want to look elsewhere if you think there might be a risk, such as losing your job, failing to repay, or struggling to do it. You may need a different deal – or perhaps extend the duration of the loan for lower monthly payments.
How much money do you need
When you ask for a loan, some lenders will give you the maximum amount of money they can spare. Sometimes, you may not need it all, but just a small percentage. Just because you get a good offer does not mean you can take it.
Simply go for whatever you need – perhaps a bit more for unexpected expenses, but this is pretty much it. If you only need $10,000, it is pointless to borrow $20,000 just because the lender is willing to give you so much money.
Interest rates and fees
The amount you want to borrow will be the same, regardless of the lender. So, why would you shop around then? Easy – interest rates and fees add to the price of the loan. They make the difference between a good deal and a terrible one.
The lower the interest rate is, the more affordable your loan will become. Make sure you do the math upfront. If you find it too difficult, get in touch with an independent broker, and they will recommend the most suitable option for your business needs.
When it comes to fees, they work on the same principles. You may have late fees, insufficient fund fees, processing fees, and origination fees, among others. You need to consider these fees just like you consider the actual interest rates.
Funding time
In an ideal case, you should not be worried about the funding time. Some lenders can process your application and give you the money within hours – more common for small amounts of money. Some others may take days.
If you need a massive loan for equipment or other expenses, it may take more than a week to get the money. It depends on how urgent your needs are. Ideally, you should give yourself time, rather than wait until the last minute.
Last minute deals are not as good as those under no pressure.
Customer service
At some point, you may need help with one thing or another. You may want to discuss further options or perhaps a better deal. You want good customer service that can tackle your needs accordingly – maybe look for reviews or perhaps try it out before you accept an agreement.
Bottom line, a little attention to small details can push you in the right direction. All these things are small and straightforward, but in the long run, they can save you a fortune or prevent you from making a mistake.
