This allows you to apply for a loan in a secure and a responsible way, as well as ensuring that you always find a deal that's right for you and understand the finer details before putting pen to paper (or, in our case, e-signing your documents).
Below is an overview of the various dos and don’ts associated with business loans, including what actions you should or shouldn’t take when applying for your loan and after you’ve received it.
The first order of business is reviewing the things you should do.
There are, of course, many recommendations we could make about business loans as a lender ourselves.
Understand your cash flow
Prior to applying for the loan, it’s important to take a bit of time to truly understand your business’ cash flow situation.
This refers to the business’ incoming and outgoing cash flows. Once you understand exactly what's going in and out each month, you'll get a feel for what you can feasibly pay back each month, without overextending your business.
This helps you to settle on repayment terms that are best for your monthly budget.
Do research to ascertain the best loan type and lender
Prior to making a loan application, you need to ensure that you do thorough research to ensure that the loan facilitates your business’ financial situation. You also need to ensure that you select the right lender for you in terms of the application process and the terms involved. Remember to verify the legitimacy of lenders as well.
Ensure your payments are made on time
Credit scores are as much a part of businesses as they are a part of personal life. Repaying your loan according to the stipulations set out by your agreement is very important. If this is not done, you could be putting your credit score at risk, which has implications for any business finance applications you intend to make in the future. There are many free methods you can use to check your business’ credit score.
The next point of focus is on the things you should not do where business loans are concerned.
1. Do not spend the funds on disallowed things
Many loans impose restrictions on what the funds you receive can be spent on. One example of this is that a business loan should only be used to cover business expenses and not personal ones. Similarly, you can use only use asset finance to purchase assets such as equipment or a vehicle. In fact, a short description of the loan’s intended purpose is required for many loan applications. This is one of the factors that determine your chances of success in the loan application. Ensure that you are acutely aware of what you can spend the loan on as there is a contractual obligation.
2. Do not gloss over a lender’s eligibility requirements
Every lender has requirements that potential borrowers must meet before a loan can be approved. It is important to ensure that you pay keen attention to these conditions before you make an application. There’s no point in wasting your time applying for a loan that you don’t stand a chance of getting. Also, it helps you to determine that a loan is right for you.
3. Don’t simply opt for applying to your local bank
Whenever you’re considering applying for a loan; it is very tempting to head to your local bank. They’re usually located conveniently, and they are usually trusted providers. Be that as it may, there are usually other responsible lending agencies that can grant you the loan you desire. In fact, they may even be able to grant you a better deal than the banks can. This includes more flexible repayment terms, greater benefits, and even lower interest rates. As stated before, just remember to ensure that a secure and verifiable lender is chosen for your borrowing needs.
Hopefully, this short guide has helped you to be prepared by outlining the required considerations you need to make prior to making a loan application.
