Getting a small business loan is one of the biggest steps you will take in the course of starting and running your own business. It can be complicated, scary, and overwhelming.
If you have never run a business or gotten a loan, these feelings can be magnified tremendously. While there are some pretty straightforward methods to the madness, these tips on what not to do can help clarify some areas.
Do Not Assume What You Hear is What You Get
It just isn’t always true, even with a tried and true lender. The problem is, loan officers do not necessarily want to take the time to explain everything to everyone who comes in asking for a loan. In addition, it is easy to forget that just because a borrower is eligible for a loan, they may not understand all of the ins and outs of small business financing. Most loan officers just assume that borrowers will get their money, and then pay whatever they are told the monthly payment will be.
Don’t be that borrower. Be aware of the fact that there are fees that may not be mentioned verbally, and make a point to look for them and understand them on all paperwork. There are always origination fees, administration fees, and sometimes application fees. Know how much these are, how they are to be paid, and when they are to be paid.
Are they going to be paid up front at closing? Are they going to be rolled into your loan and financed? Know exactly what you are paying, how you are paying it, and when you will be required to pay it.
Don’t Assume the Interest Rate you are Quoted is Your Actual Interest Rate
A good lender will not lie about the rate, of course. The thing is, all those fees and such can skew it. Also, the actual rate versus the optical rate can be quite different. While it may appear that if you have a principle of $1,000 and you pay $1,100 over three months on weekly installments, you have paid 10 percent interest, in truth the rate is closer to 80%.
Interest is confusing, but ignoring the actual interest rate is dangerous. Your annual interest rate is important information. It is also important to know whether it is fixed or if it will vary over the life of the loan.
Do Not Ignore Other Costs
Though they may be a necessary evil, you are paying costs that you may not associate with the loan or be tempted to ignore. Administrative time on your end is an excellent example. The time you have to spend finding a lender, then pulling together application information, is an important cost. Give it a value and know what it is.
Also, determine upfront if there will be penalties for pre-payment and what they will be. This way, if prepayment becomes an option, you know ahead of time what all will be involved.
Biz2Credit can help you cut down on some of the time and expense of finding a lender. Our network of lenders offers all types of small business financing to meet a broad range of borrower needs. Just a few clicks and you can be well on your way. Visit Biz2Credit.com today to get started.