When you’re starting a business, one of the biggest challenges you’ll face will be finding the money to fund it. If you don’t have enough money saved up to start your business, or if you want to grow your existing business, there are loans out there that can help you get the funds you need quickly.
But how do loans work? What are the loan rules in banks for businesses? How do I apply for loans?
1) Business loan interest rates
Interest rates for small businesses start at 3.5 per cent on average for a short-term loan of up to $250,000 and 5.0 per cent on average for a long-term loan of up to $1 million.
The interest rate is set by your credit history, financial ratios and cash flow, as well as supply and demand in different marketplaces throughout the country where banks operate.
2) Loan repayment time
A loan repayment time is stated in months or years, which indicates how long it will take to repay your loan. The standard loan repayment period is 2-5 years, and it’s important to stick with that period.
It may seem like a huge amount of money, but if you do not make your payments on time, extra fees can accrue and can lead to even more financial hardship.
3) Debt Consolidation
If your company has a ton of debt, it might be too much. If everything seems underwater, consider how a debt consolidation loan could lighten your load and lower your interest payments.
For example, by consolidating higher-interest debts such as credit cards and moving them into a loan with a lower fixed rate, you can save money over time while increasing your bottom line.
4) Loan Sources
Banks aren’t your only option for getting a loan. Banks make up a large portion of all lending options, but there are others, including credit unions and peer-to-peer lending.
Before choosing a lender, evaluate all of your options; consider interest rates and repayment schedules, among other factors. Be sure to explore both short-term and long-term loan opportunities. As with any other purchase or financial decision—do your research!
5) Application Process
The process for applying for a loan will vary from bank to bank. Generally, you’ll want to do some research into which bank is most suited for your needs and visit their website or call them directly.
Ask what their current rates are, how much money they currently have available and how much it will cost to borrow from them. Some banks may require collateral; others will not.
6) Guarantor Loans
Your parents might be a great option for becoming your guarantor, but even they won’t be able to help if you don’t go into detail when applying.
If your dad and mom are on good terms with their bank (and yours is not), and they’ve shown that they can pay their own bills, then a bank may be willing to work with them as a guarantor.
7) Different Types of Business Loans
There are several types of business loans. Knowing which loan to apply for will help your application be taken more seriously by your bank.
If you apply for a loan that is not suited to your needs, it might not be approved and could even cause damage to your relationship with your banker.
The most common types of business loans include Merchant Cash Advance (MCA), Lines of Credit, Owner Financing, Term Loans, Equipment Loans, Bank Loans and Real Estate Loans.