When a business starts operating, there are many things that the business owners needto take into consideration. From the product or service that they want to offer to the kind of customer base, they want to target, from choosing the right place to buying the equipment that can boost productivity. They take into account every single detail that they come across. However, one of the most important things to take into consideration is finances.
The biggest worry for an entrepreneur is how they will finance their business and get the right equipment to run their tasks efficiently. It’s comparatively easier for individuals who are starting with saving to fund initial functions of their business. But if someone is starting from scratch, they are in a heap of trouble if they do not have the right solutions. In order to make smart decisions, entrepreneurs need to know where to go for the right funding. If the financial choices you make are effective, it can go a long way even for a small business that is just starting out.
One of the easiest and most convenient ways to generate capital is to get business equipment loans. It can be the perfect source for generating finances; however, being able to obtain a good loan is where the difficulty lies. Even though there are various equipment loan options available in the market, including SBA loans, conventional bank loans, peer-to-peer loans, or online working capital.
Even with all these options available to businesses, its less likely to find agencies just waiting to hand money out to you. When applying for a loan, you need to be very vigilant and keep a few things in mind. We have compiled a list of dos and don’ts to take care of when applying for business equipment loans.
A LIST OF DOS AND DONTS FOR BUSINESS LOANS
DO NOT GO OVERBOARD
The pursuit of finding a loan can often be extremely overwhelming. While your gut tells you to send in applications for as many loans as you can manage, the temptation can become extremely harmful to your credit score. Which means you should only pick out loans that you could actually qualify for and apply for those. Wait until they either accept or reject your loan to make further procedures.
When you apply for a loan, whether for equipment or property, banks check your credit score, and too many applications can mess that up for you. Contrary to popular belief, only getting a lender to generate a quote for you can often create an impact on your credit score.
Instead of going around applying everywhere, look at the lender’s criteria for loan applications, and only apply where the shoe fits. It’s better to be safe than sorry!
PAY ATTENTION TO HOW MUCH THE LOAN IS COSTING YOU
Each lender will explain the cost of the loan to you in a completely diverse way, and this can often be confusing for first-time borrowers. Lenders can explain the loan in terms of the interest rate on loan, others might tell you the entire amount that you have to return. However, its better than ask for the APR (Annual Percentage Rate) of your loan. This will help make loan comparisons easier.
Before we proceed, the APR is the overall cost of your loan in regard to a years’ time. This rate can vary from standard funding agencies, to fast funding agencies. This will depend entirely on who you choose for these services. You have no reason to think that lower APR loans are better than higher APR loans and vice versa. The APR will depend on the time frame in which you have to return your loan.
DO NOT FALL INTO PREPAYMENT FEES!
People who are unaware of how business loans work, or are taking their very first business loan should be extremely cautious when browsing through loans. Prepayment fees are a type of penalty that lenders charge if the borrower pays back the loan before time.
This fee is not too much, but a maximum of three percent of the outstanding amount. However, some lenders may give you the leverage of reduction or complete removal of this penalty. You need to negotiate your stance before signing the final contract. Be sure that you know what it will cost you to make payment beforehand.
BE AWARE OF WHAT YOU ARE PUTTING AT RISK
Signing collateral is an essential thing when lenders are giving business loans to small businesses that have just started out. This is to secure their loans, in case businesses are not able to pay back. Signing collateral would mean that you would have to put valuable business or personal assets at stake when signing for a loan. These valuables could include company equipment, personal property, inventory, etc. Signing collateral against a loan would mean that the lender would have the right to seize your property, equipment, and other assets if you are unable to pay off the loan on time. This helps lenders feel more confident when issuing loans. Even though it seems reasonable, always remember to be 100% sure when signing collateral that you can afford risking your personal or business assets.
DO NOT EXPECT TOO MUCH.
The market is filled with people ready to lend money, and it makes borrowing money sound extremely easy. Whereas the criteria against which these lenders lend money is too high and stringent. They want to lend money to those who need it, but they need to be sure of the people they are investing it. They take into account your credit score and everything. So,do not expect too immediately to receive a loan when you head out into the market.
There are a number of things that a business needs to consider when applying for a business loan, and these include premises, equipment, market, customers, and finances. Even though each of these factors is equally important, the biggest question to address is how to generate finances for the business to start working. This article provides a detailed account of what to do and what not to do when applying for a business loan