Opening and maintaining a business means a lot of things. But one thing in common all businesses have are loans. Especially if it is only a small business or a start-up business, loans can either be a make or break for a lot of them.
For businesses who have not yet mastered what kind of business loans should the business enter into or what works well for their business, it would be quite a feat trying to go through all of the types and kinds of business loans that are available at this very moment. How does one compare business loans from one another? Should there be anything that business owners need to consider when looking for business loans?
When comparing business loans and looking for the right one to apply for the business, there are a lot of things that business owners should consider. Like the length of time of repayment for each business loan, the loan sizes that they offer, and a lot more. Here are ways to compare one business loan from another:
1. Check the interest rates of the business loans you are considering
This is the first step when comparing business loans as your monthly payments and the total amount that you actually pay will be affected.
2. Examine and review the type of Business Loan you are considering
As there are various types of business loans, you need to compare what will work better for you and for the business, for example: a line of credit offers a debtor to pay only for the interest of the money that was spent, whereas a loan requires a debtor to pay the interest of the full amount.
3. Check the length of the loans
Checking the length and comparing the length of the probable business loan is a must as this will tell you your overall expectations on the loan: the longer the payment, the more money you will spend on the loan, while the lesser the length of the loan means that it is an overall cheaper alternative.
4. Check and compare both the hidden fees and the late fees.
There are financial institutions who have a lot of hidden fees like closing fees, compare and contrast with your other choice of loan as different financing institutions have different hidden fees. Compare and be able to decide on what actually works better for your business.
5. Compare the total amount you are expected to pay.
Compare the loans you are considering by applying various time frames with their equivalent interest rates and make sure that you’re comparing apples to apples. This allows you to be able to properly plan your funding for the lifetime of the loan. Remember to compare the overall total expenses you will pay over the two loans.
6. Other factors to consider comparing with other loans:
While the first 5 are the most basic of factors that you need to consider when comparing business loans, when you get the chance, always check for the following too (when applicable):
- The fixed or variable interest rates of the loans
- Whether or not the loans have partly a fixed interest rate and partly on a variable rate
- If the loans are able to switch to a fixed or a variable interest rate
- If the debtor has the option to make additional repayments to pay off the said business loans
- If the debtor has the choice to withdraw additional payments
- If the debtor can make lump sum payments so that the loan can be repaid faster
- The portability of the loan and whether or not the business can keep the very same loan if they ever move to store or office locations.