Loans are one of the ways to start a business, grow it and protect it during the lean periods. But while loans are beneficial, it can also negatively impact your small business should you fail to meet the agreed repayment scheme. By following these tips for being a responsible narrower, you can ensure maximize the benefits of a business loan and avoid hurting your enterprise.
Establishing good relationships
Business loans have more requirements than a personal loan. If you get a business loan, it will take a bit longer. There are times when banks ask for a list of your clients and vendors to prove that your business is profitable enough to repay the loan.
On the other hand, you can establish a good relationship with your vendor to help you out with your business. When the days are lean, you can ask your long-time vendors to give you a more flexible repayment agreement. You can also ask for discounts should you buy more in bulk. This way you may avoid getting a business loan.
Since your vendors can only do as much help for you, you can also have the option of getting a personal loan from a reliable cash mart money lender. Personal loans are easier to apply for and the process is much faster.
Use a loan calculator
Before you start your loan application, whether it be a personal or a business loan, do not forget to use a loan calculator. Banks and reputable lenders usually have put up their loan calculators on their website. It includes their loanable amount, payment term, interest charge, and total payment dues. The best loan calculators even ask for your preferred date of disbursement to give you the possible repayment dates of your installments.
With a loan calculator, you can easily estimate how much you can borrow, how much you can afford to pay, and which repayment term will give you the most convenience. The calculators are absolutely free and you can use it as much as you want.
Know debt-to-income ratio
The debt-to-income ratio is defined as the comparison of your annual profit to your debt. This will tell you if your current finances can still handle the additional loan. If your ratio is 1.0 or higher, then you are in a good position to acquire a business loan.
On the other hand, if it is below 1.0 it means you have spent your company income too thin. You have to reconsider your finances why trying to see which ways can you save more money. You can ask your employee for suggestions on how you can save without sacrificing your company goods and services to the consumers.
Give yourself a financial cushion
Having a business is not a walk in the park. While you are your own boss, you have to make sure that you are working hard to build your company’s financial cushion. Make sure that you save even the loose change. This way you can build as much as six months of business expenses. Should there be an unforeseen financial setback, you can still have a few months to get back to your feet without putting the quality of your goods in the line.
Your savings will not only make you look like an ideal borrower. It will also give you the capacity to handle emergency situations.
Draft a business plan
Though it does not have to be too detailed, money lenders will ask for your business plan. This will give an idea of what your business is about, how professional you are, and what are your future plans to increase your income. These facts will help the lenders decided if you are creditworthy.
Don’t take the first offer
Now that there are too many money lenders that offer business loans, you may get too overwhelmed. Never accept the first offer you get without scrutinizing every detail in your contract and spending time comparing it with other offers.
Read the reviews first to avoid dealing with loan sharks. Once you decide on the lender, you have to read the fine print. Check if all the charged and fees are transparent. See if there are early payment penalties and other charges that are unclear to you.
Borrow only the amount you can pay
It is tempting to borrow way too much money than you need. But this is too risky if you suddenly get into a rough patch and you will be unable to pay on time. Late payment fees will commence and you will have a hard time balancing your finances. It is best to borrow only what you need and consider the ways to increase your profit margins such as cutting overhead and downsizing.
Make your payments on time
Always make your payments on time. You do not want your credit score to suffer since you will definitely need more loans to expand your business.