4 Factors To Consider When Taking A Business Loan

‘You said the F-word? Put a dollar into the F-word jar!’

Some words are considered so reprehensible that they have attained ‘That Which Must Not Be Named’ status.

Business owners have one such word, that may be exclusive to them - the L-word.

Yeah, I’m talking about business loans.

Getting such a loan is an entire process. You could have an entire profession simply facilitating and brokering loans for business owners.

Getting a business loan should never be something you do without a great deal of planning.

Here are 4 factors to consider when taking a business loan.

Be clear about why you need the loan

Say you run this escape room in Huntington Beach.

Business is good, you’ve got a few corporate clients, and you’re thinking of expanding.

You’re in profit, but it isn’t big enough to pay for the expansion.

You don’t want to bring in a new equity investor.

The only remaining way would be to go for a business loan.

Now, what do you mean by ‘expanding’?

Do you want to add a new escape game to your room?

Do you want to open a new location?

Do you want to invest in marketing?

Warren Buffett says…

If you can’t write down on a piece of paper why you want to buy a stock, you shouldn’t buy it.

The same goes for loans.

If you don’t know why exactly you need the loan, you shouldn’t go for it.

How much money do you need?

Once you know what you want to use the loan money for, you can determine how much money you need.

If banks find your overall business prospects promising, they’ll want you to go big.

The larger the loan, the better their books look.

Don’t fall for it. A

What’s the repayment going to be like?

pply for only what you need.

Knowing the APR (Annual Percentage Rate) - the interest rate charged per year - of your loan is necessary, but not sufficient.

Things like

• What fees there are - origination fees, processing fees, and so on

• What the total repayment period is

• Is the interest rate variable

Are all crucial bits of information in evaluating a business loan.

Reading the fine print

Make sure you read the fine print and run the numbers before you decide whether to accept or reject the loan.

• Is the total interest going to be larger than the principal amount?

• Is there a balloon payment?

• Will you be penalized for early repayment?

All these are crucial facts you must know.

Shop around for the best option

Don’t be limited by geography

Say you’re applying for a loan to open a Chicago escape room.

There is no reason why you should apply to banks in Chicago, or even banks in Illinois, only.

The internet allows us to transcend geography.

You can apply to...just about anywhere.

Make sure you’re getting the right kind of loan

You can look at banks, at credit unions, at institutions that offer merchant cash advances.

Make sure the help you’re getting matches your business and requirement profile.

Know your credit score

Your credit score is a large factor in determining the interest rate you’re going to pay.

The lower your credit score, the riskier the banks will deem your loan, the higher the interest they’ll demand for handling the risk.

So, make sure you know your credit score.

Get a copy of your latest credit score report, and go through it.

If you think it’s an erroneous report, get in touch with the credit bureau involved, and ask them to fix it.

Credit scores

Generally speaking,

• A credit score of over 700 would ensure a low-cost loan

• A credit score between 600 to 700 hikes your interest cost substantially

• A credit score of less than 600 means your loan application may be rejected

To sum up, the 4 factors to consider when taking a business loan are

• Be clear about why you need the loan

• What’s the repayment going to be like

• Shop around for the best option

• Know your credit score

I wish you all the best in getting your business loan application approved!