Key considerations for business loans

Most businesses need to raise external capital from time to time. Here are six tips to consider before taking out a business loan.

‍

‍

Purpose of the loan

Only borrow money when there is a clear purpose for the loan and a plan to use the money to grow your business. This could be to finance a purchase, invest in new premises or hire someone. Borrowing money without a clear purpose means that your business will incur unnecessary costs.

‍

‍

Loan amount and repayment period

How much you borrow and the repayment period you choose will affect the cost. Borrow only as much money as you need and choose the repayment period that suits you and your business best. Shorter repayment periods mean higher repayments but lower costs. 

‍

‍

Look at the total cost

It is easy to focus on the interest rate when taking out a business loan, but there are many other aspects that affect the cost of the loan. Origination fees, arrangement fees and administration fees are all things that can have a big impact on the total cost. It is also important to check whether the interest rate presented is annual or monthly. Make sure you know the total cost before you take out the loan so that you don't get a price shock afterwards.

‍

‍

Which repayment rate is right for your business

There are different arrangements for repaying a loan and it is important to look at your company's revenue flow to choose the most suitable option. For example, if your business has a high proportion of daily sales through card transactions, repaying in smaller amounts on a daily or weekly basis may be suitable as it does not affect cash flow too much. If you are paid by invoice instead, larger monthly installments may be preferable.

‍

‍

Possibility of early repayment

Needs can change over time, which is why it is important to consider the possibility of repaying the loan early. With an open-end loan, you can choose to repay the loan early if you no longer need it. This way you can reduce the cost of the loan.

‍

‍

Do your research

Review your options before taking out a business loan. Compare different lenders to see which one can give you the best deal for your business. It's also a good idea to see what other customers think of a lender by reading reviews on sites such as Trustpilot.