With the numerous business loan options available in the market today, borrowers are likely to get confused on where to begin. Gone are the days when traditional banks were the only alternative if you needed capital to start up your business. Today many online lenders have emerged and they all have their unique features and requirements.
Many borrowers are at pain when deciding which lender to use and some make rush decisions just from watching their enticing adverts. They then wallow in regret and are left wondering why their financial strategy didn’t work. Choosing a loan may be simple but the research for the best and most affordable loan is the most daunting task and many people will give up.
How to compare business loan options and choose the best
The idea is to end up with an affordable loan that will not eat into your cash flows. Below are some common ways you can use to compare your business loans:
Type of lender
Different lenders have different requirements for you to be eligible for funding. banks are quite strict with their conditions and rarely give loans to startups. Many entrepreneurs are turning to online lenders who have few restrictions. Asses your capabilities as a business and choose a lender who you are compatible with.
Collateral required
Some lenders require you to offer security before you get funding. Many borrowers like unsecured loans because they don’t have to give out their properties but these kinds of loans are considered risky therefore they attract a high interest rate. Secured loans on the other hand come with a lower interest rate and the lender may prolong your repayment period depending on the kind on asset you placed as security.
Loan purpose
You can use this tool to compare business loans because some lenders will offer extra services depending on the specific purpose of the loan. If for example you are looking for vehicle financing, your lender could go a step further and offer insurance policy for your business car.
Interest rates
Debt financing comes at a cost. You will have to pay interest on the borrowed amount. Rates vary from lender to lender and also depend on the kind of loan you take. SBA loans come at competitive rates but short term loans like merchant cash advance come with high rates. It is important to take keen attention on the cost of capital as a tool to compare business loans because any slight difference will affect the loan’s affordability.
Loan term
Choose loans that suit your business cash flow. Lenders offer different repayment periods depending on the kind of loan you borrow. Most will give you a term of 1- 7 years. Short term loans however are paid within months.
Loan amount
Minimum and maximum will vary from lender to lender. Some will give you loans as low as $2000 and a maximum of $1000000. Use this means a means of narrowing down your options.
Business financing options available to you
Securing the right loan can be a game changer for your business. It doesn’t matter the kind of loan you are looking for, it is important to make the most informed decision because it may affect your business positively or negatively. There are several loan options available for your business and you only have to choose what you are interested in. The loan you choose should also be able to cater for your needs perfectly. Some of the most common ones are:
Business overdraft
These kinds of financing options are tied to your bank or business account. The bank allows you to withdraw above your bank balance. It is designed to help you finance your short term business needs. The loan is ideal for businesses with fluctuating cash flows.
Business line of credit
They are more or less the same as bank overdrafts the only difference is that these loans are secured with a personal guarantee. It gives you additional capital when you need it.
Credit cards
Business owners can utilize both personal and business credit cards to finance their short term capital requirements. When using credit cards you can benefit from free grace period and the flyer points. The only pitfall with this kind of financing is that they can be expensive if not paid in full each month.
Cash flow lending
If you are a business that generates cash flow but cannot provide security for a loan, then this loan is for you. The loan is secured by the working capital asset of the business.
Invoice factoring
This financing option allows you to sell your outstanding invoice to a third party company. The third party company will then collect the debt from the client in full. They usually buy your business invoice at 85% of the amount due.
Invoice financing
With invoice financing, businesses that rely heavily on accounts receivables can get continuous funding. The lender provides funding on your outstanding invoices to sustain your operations. These loans are usually paid in three months or immediately you receive payments on your invoice.
Vehicle financing
If you need to purchase a vehicle for your business needs, then there are several business car financing options to choose from. The loan is usually secured so you can get competitive rates.
When making a financial decision, it is important to make the right choice. Compare your business loans options and choose on your terms and not the lender’s.
Call us today and let us help you understand your business loans.
