Every new and small business needs an occasional jump start. But the way you finance your business can haunt you in the end. Avoid the pitfalls by picking out the best commercial loan rates from the beginning.
You may be wondering whether a commercial loan is right for your business. There are as many success stories as there are failures. But understanding how commercial loans work will lead to a success story of your own.
You may find that acquiring a loan is easy. If your business is in good standing, there are plenty of lenders who are happy to help. But without the right preparations, you could inadvertently put your business at risk.
Understanding Commercial Loan Rates
First, you need a very good reason to take out a business loan. That reason should align with a growth initiative that will help pay off the debt. This may include financing essential equipment or a new marketing effort.
Most importantly, you need to understand the details of your loan. A misstep could result in high commercial loan rates that could cripple your business. You might end up making large payments for too long.
Ensure you have a purpose and an understanding of your options. Then, spend time identifying a commercial loan rate that meets your specific needs. The loan should be a factor for your long-term success.
5 Steps to Selecting a Successful Commercial Loan
There are several dimensions to any business loan. Don’t overlook rates and fees. You should consider the integrity of the lender as well.
The following five steps will help you select the best commercial loan for your business. Keep these priorities in mind as you manage all future financing as well.
1. Identify a Specific Business Need
Loans might be appropriate for long- or short-term business needs. Each of these needs may predicate a different type of loan.
For example, companies like Wire Lend can provide signature loans. These are immediate cash loans that don’t require credit checks. They are also advantageous because they require no collateral.
One of the best reasons for this type of loan is to make payroll. Small and startup businesses often experience cashflow problems that could put employee wages in jeopardy. This is an unacceptable outcome for any business.
Most businesses will take a loan for long-term investments. These should typically align with some kind of growth initiative. Supporting that growth will provide you with means to pay back the loan.
For example, your company might be experiencing a great deal of growth. You need more equipment and staff to support increasing demand. If you don’t have cash on hand, a commercial loan could be right for you.
2. Consider All Types of Loans
As mentioned, signature loans provide immediate cash that can be used in emergencies.
Commercial loan rates for these types of financing can be considerable. They may ask for daily, automatic withdrawals from business accounts as well.
Business loans from banks may provide more competitive commercial loan rates. There are modern lenders that are alternatives to banks as well.
The following are some examples of loans you might consider for your business. We’ll highlight some general aspects of commercial loan rates for each:
Term Loans are traditional loans provided by banks. They offer a lump sum of cash that you pay back with interest over a fixed period of time.
These can be ‘fixed-rate’ or ‘variable-rate’ loans. A fixed-rate loan locks in your rate for the duration of repayment. This dependability is helpful when planning the future of your business.
A variable-rate loan will have a rising and falling interest rate. These are less predictable and make budgeting difficult for small businesses. But since the rate changes with the market, you could save money on your total payment.
Short-Term Loans offer a lump sum that you pay back with interest. However, most require daily payments over a short period of time. These are good for one-time expenses like making payroll.
You can acquire loans for specific business needs. Equipment Loans are designed to finance equipment, where the equipment becomes your collateral. Merchant Cash Advances are short-term loans for businesses without good credit.
3. Compare Commercial Loan Rates
The type of loan will partially dictate the interest rate of that loan. The lender and your own credit are factors as well. If the loan calls for collateral, that may also determine the rate.
As mentioned, be sure you are taking out the right loan for the right reasons. Then, look at the nature of your business. If you’re walking a thin line in terms of your budget, a fixed rate is right for you.
Compare interest rates, but look into loan details even further. Do certain loans have regular or irregular fees? These fees could roll into the total loan amount and cost you more over time.
Be sure to look at annual percentage rates (APRs) and not just your interest rate. Your APR incorporates the total borrowing cost. This is the most important figure beside the dollar amount of your loan.
Now, compare APR rates with quotes from other lenders. You need to find a happy medium between the loan amount and the APR. You should always think of the safety of your business before you take out financing.
4. Budgeting to Accommodate Loan Payments
Be realistic about your budget before accepting your loan. Can you safely make the monthly payments? Will those payments impact your business growth more than the loan will help?
All your future initiatives will be directly or indirectly affected by your loan payments. Ensure those payments are in your books immediately. Look at all your plans and consider how those payments will affect them.
Your loan should produce business value over time. But consider it a loss for your immediate budget. As you allocate that loan to your initiative, you’re reducing cashflow for your business.
5. Nurture That Investment
You have good business sense. That’s why you took a risk to invest in your new initiative. You will have wasted that money and effort if it fizzles out.
Do what you need to make that investment work. If you see modest successes, don’t rule out adjusting your strategy and financing it again. Business success takes a risk, but it takes the care and support of you and your people as well.
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