A lot of business owners make the mistake of only looking at things like interest rates when checking for financing. While it is true that it is a large part of the equation, there are so many other things that go into it. This is why so many people end up being surprised when they realize how much they actually have to pay.
This also means that you need to be educated about what features are the most important when picking a business loan so that you don’t end up making a costly mistake. Here are some of the most essential things you should be looking for when shopping for a business loan.
1. Factor Rate
The factor rate is something a lot of people don’t fully understand, but could make a large difference at the end of the day. Put simply, it is a fee that is applied on the whole principal, not just the amount owed on the debt like interest rates. If you want to learn more about factor rates and how they’re calculated, you can visit advancepointcap.com/factor-rate/. It doesn’t only explain what factor rates are exactly, but the different things lenders will be looking for when calculating the factor rate on your loan.
2. Your Options
Another thing you should be looking for are the options that are open to you. If you need money to deal with day to day expenses or deal with crucial functions like payroll, you could look at something like invoice factoring, for instance. If you have some assets, you could put up collateral. Or, maybe you would be better off with a line of credit that would give you the flexibility that you need.
Don’t be stuck on your traditional short-term small business loan, and look around. For example, options like invoice factoring will rely on your clients’ credit and not yours, making it a great option for people with little to no credit history.
3. Lender Requirements
This will be essential not only so that you don’t waste your time on loans you can’t realistically get, but to limit the number of inquiries on your credit report. You also want to know exactly what type of documentation will be needed, and don’t be afraid to bring additional documentation that could help your case. They might ask for things like franchise agreements, articles of incorporation, or proof of license, so make sure that you are ready to produce all of these documents.
4. Repayment Period
Here, you will need to evaluate if you’d rather pay over a shorter period or a long period. Some might assume that shorter is better, but there are some cases where it would be better to stretch it out, even if it means paying a little more in the end. You also want to know if there will be any penalties if you decide to repay your debt earlier.
These are all essential things that you will need to consider when shopping for small business loans. Make sure that you take the time to look into the details of any loan, and take advantage of all the choices you have at your disposal.