You are a small business owner, having just started out recently and you might require funds to kick-start and expand your business. The current situation that you are in just doesn’t cut it, having to save up your earnings to expand your business. Perhaps you have turned to a bank for financing options, but your loan was rejected due to some profiling reasons.
Why do businesses need loans?
For a quick expansion and growth, a business requires sufficient funds in order to achieve that. An injection of funds allows a business to purchase more assets, expand the physical size of the shop, hire more employees, open up another outlet, increase production, etc. Rather than depending on the accumulated profits, a business loan is a sure-fire way to increase the potential of your business.
Borrowing of funds from a finance company
Why do businesses borrow from a finance company instead of borrowing from the bank? There could be a few reasons for that: with the bank having strict requirements for a loan, the business is too new to be considered for a business loan, the owner of the business might have some bad debts and his credit rating may be affected, the business may be in a risky industry and may have lacked sufficient collateral, or even in a situation where the bank feels that the business may not be earning enough.
Interest rates
The interest rate that is associated with business loans from finance companies may be higher than banks, but this is to cover the risk that the business may default on the loan. For some finance companies, the longer your loan (like over a period of 7 years), the higher the interest rate tends to be, when compared to a repayment period of 5 years. For a business loan, Max Funding has many repayment terms available.
Calculating the hidden costs
Each finance company has a set of charges when it comes to a business loan. A $100,000 loan may not just be a $100,000 loan to be repaid. There may be hidden charges such as a processing fee or a loan establishment fee and special attention has to be made to the real annual interest rate. For a clearer picture, contact the representative of the finance company directly and ask for a breakdown of all the costs, and the repayments (fortnightly or monthly) on the sum of money that you are going to borrow.
Being a responsible borrower
As a business owner, you are solely responsible for planning your finance and determining whether you are able to afford the repayments before you commit to the loan. Make sure your finances are healthy and do not overstretch yourself by taking up a huge loan. It can be enthralling to be flooded by such a huge amount of cash to expand the business, so make sure you plan everything by allocating the required funds for the sole purpose of expanding the business only and not waste it on frivolous items.
Borrowing can be a double-edged sword, so until you have paid off your debt, managing it is of utmost concern and it is prudent to save for a rainy day in case something unexpected happens.