Any business will at one point or another, experience financial hiccups, but all that matters is how you bridge these gaps. The solution is not as always straightforward as seeking any business loan; it can be difficult to pinpoint the best financing product for your small firm amid the vast range of lenders and technical terminology used in the commercial funding industry.
Below is 2018’s best lead to borrowing for your micro-business. Here are the factors to consider.
Why do you want to borrow?
It makes more sense to mull over the reasons you need financial support and whether you are likely to acquire keeping in mind that failing to qualify may impact on your future outlooks for borrowing.
For how long will you require the funding?
Short-term loans are a better remedy for fixing cash flow constraints, purchasing equipment, and equipment or financing marketing campaigns.
On the other hand, medium and long-term loans are ideal for those who are starting up or expanding a running enterprise.
Most micro- to medium sized firms seek quick and ready funding in times of constraints, and that’s precisely what short-term loans offer. Settlement periods are often as short as within months or a year; that explains why they quickly became the small retailers’ favorite.
Fixed rate or variable rate deal?
For a fixed rate deal, you have the surety of the cost for the whole duration. And while variable rate deals are a cheaper way to start, you may end up paying more if interest rates go up with little chances of withdrawing from the agreement without laying yourself open to penalty charges.
Collateralized or Uncollateralized?
Some loan products are designed to be secured by the borrower’s assets which the lender can liquidate if the borrower defaults.
Secured loans will increase your borrowing cap, but the amount you get largely depends on the equity in the asset you collateralize your loan against.
On the downside, most collateralized loans charge upfront fees to cover up administration and may take time to obtain due to legal procedures like property valuations.
So retailers can opt for unsecured loans which do not need asset or dig deep into personal credit history. Uncollateralized loans also have faster application and approval, and quick settlement compared to long-term products.
But also remember that while you short-term interests are easy to pay off, some tend to charge high-interest rates than if one opted to pay back over a long term.
Since repayments are stretched over a long span, often in monthly installments, what you pay back is usually much lower than on shorter terms.
Consider specialist and new-age lenders
The bottom line is; do not seek a loan by brand recognition, search for a lender that offers the loan type and amount you need. When looking for a product like a high risk business loan, check rates across firms to get an idea of the amount you could pay.
Author Bio: As an account executive, Michael Hollis has funded millions by using different financial solutions. His experience and extensive knowledge of the industry has made him a high risk business loan expert at First American Merchant.