Criteria that businesses consider before securing a loan
There are various factors an entrepreneur would consider before taking a loan for their business. The first one would be availability; most financial institutions have been availed around us thus visiting them to request for loan is not a big problem. Besides banks, there are many other reliable financial institutions like Certified Business Loans that are available to citizens nationwide.
Small businesses also consider the terms of the loan in terms of the collateral security or the interest and monthly installments to be paid on the loan, if the loan is used for purchasing equipments, the collateral security is normally ownership of that inventory, and this is normally a short term loan of a period of below seven years. For an established business to access the loans it might need a proven track of record of the business.
Loan term is usually considered by most businesses, many institutions offer long term payment term, some loans have flexible terms of payment while others do not, businesses may want to change the term of payment and monthly installments so as to suit their business needs while the banks may not have provisions for the change of term of payment for the loan. Interest rate is an important factor before taking a loan, some advertisements lure businesses by how lucrative their loans are, while in the real sense they are associated with longer terms of payment, it is important to consider if the time for payment corresponds with the interest rate over the loan.
Some loans have hidden charges such as early repayment fee, penalties and arrangement fees, businesses often consider such before taking a loan. Most businesses also consider whether the loans they take floating or fixed rates loans, a number of businesses have secured loans in the past and with time the management and ownership of the business change. Operations of the business can be disrupted by loans that have to be repaid by a fixed amount monthly. Many businesses prefer a flexible terms of loan payment, thus in future they can increase the installment or reduce to suit their business needs.
Secured loans are common and the easiest to get nowadays, it is proffered by individuals who may have a bad credit records, and this is because banks have ownership of the assets offered as collateral. Secured loans normally have low interest rates, but incase one default to pay, they will lose their assets, and secured loans normally are popular. Unsecured loans are normally given to people who have high credit reputation, once a client has known which type of loan they will take; they will have to consider the details above also.
Finance is an important asset of the business, there would be no way ant business would operate or start without finance, s sound financial management system, needs to be developed by the business in order to achieve their set goals and objectives. There are many factors one would have to consider before securing the loan to finance their business; these may include security, terms of payment or interest rate. Some loans are generally easy to secure while others are hard to, this will depend on the reputation of the company with creditors or the collateral required by the loaning institution.
The business can not only acquire loans to finance, improve or expand their operations but can also rely of grants and donations by the government or the nongovernmental institutions. Equity financing can also be done, this is the most secure type of financing since the business has no legal obligation to Pay it Back but it comes with a disadvantage of losing part of ownership of the business and the smooth running of the business can be blocked because of collective decision making that has to be done by the shareholders, dividends also must be shared equally, and in case of liquidation, the share capital is paid last to the shareholders of the business. The business can use this financing to purchase permanent assets of the venture.