How To Compare Business Loans

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Today’s guest post comes to us from Andrew. Andrew has been working in the finance industry for several years. He helps people to refinance their home loans and provides advice on debt consolidation.
How To Compare Business Loans

Business owners occasionally need financial assistance to assist in start-up costs, working capital, business expansion, or renovations (i.e to make money in the long run).  For each of these reasons and many more, there’s a countless amount of loan options available.  In order to make an efficient decision on a business loan, business owners need to understand how to assess loans and what the differences can mean for their business.
The following questions will help you, as a business owner, to differentiate the options available and give you a better understanding of the loans offered.

1.    What kind of interest rate does the loan carry?

There are two types of interest rates that are used in a business loan; fixed and variable.  A fixed interest rate is a finance charge that stays the same throughout the life of the loan.  This charge is independent of the market which is the opposite for variable rates.  A variable interest rate is one that may change depending on the index published each quarter nationally.  This rate may assist your payments in decreasing, but could also be increased abruptly.  An advantage of variable rates is the tendency to have more flexibility with the loan and the payment schedule; though the stability and security of a fixed rate is not there.
2.    What are the exit fees and penalties?
A possibility with many loans is an added stipulation that if you pay out the loan early, there is an additional fee.  If a loan is repaid before the term ends, the lender will lose some of the interest payments.  For this reason, lenders choose to put a fee on ending early to minimise the loss of interest.  Before agreeing to a loan, make sure you ask about the hidden fees and it is written out clearly.
3.    Is the loan secured or unsecured?
Secured loans use some sort of equity (such as real estate property or a car), as collateral to ensure the lenders money is covered.  Secured loans are more popular and typically carry lower interest rates; longer loan terms and higher loan amounts will be made available to you.  If you do not have equity available to secure a loan, an option is an unsecured loan.  This type of loan carries a much higher risk for the lender, therefore is hard to obtain, especially in today’s economic climate.
4.    What is the maximum or minimum loan term available?
The loan term refers to the range of time the funds are lent to you.  Loan terms are highly dependent on the amount of money borrowed.  Typically, small amounts of money range no longer than a few years; while large loans (i.e. home loans) range up to 30 years.
5.    What are the lender’s requirements specific to business loans?
If a company is a start-up or in the infant stages of its business there could be additional requirements or stipulations; as the risk is higher than it would be if the lender was lending to a well established firm.  There may be higher collateral required or the interest rate may be adjusted.  Adversely, there are some lenders who specifically lend to the young businesses.

How about you all? What specific questions and/or considerations do you make when assessment a potential loan? 

Share your experiences by commenting below!

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