Before Applying For a Business Loan, Here Are Three Important Factors You Must Consider
If you're an entrepreneur who is passionate about growth, chances are that you will need a loan at one point in time or the other in your quest to become great. Believe it or not, this is the truth. Show me a successful businessman and I will show you a businessman who grew his business by leveraging on loans.
This is why loans are very important, and must not be taken for granted, because they present a business owner with more investment opportunities by making resources readily available.
Unfortunately, during my work as a credit analyst in different financial institutions I have met too many entrepreneurs who blindly apply for loans just because others are also applying for loans. That is purely the bandwagon effect. In this article, I will be discussing three important factors that an entrepreneur must consider before applying for a business loan.
1. Develop a Concrete Investment Plan
Before you set out to apply for a business loan, you must determine your investment plan. Are you investing in the purchase of fixed assets that will improve your productivity? Or do you want to increase your working capital? Or do you intend to invest in both working capital and fixed assets?
The answer to the questions above may appear quite cheap, but I have met several business owners and loan applicants who do not have any convincing reason why they are approaching the bank for a loan. As weird as that may sound, there are many business owners who still make this mistake.
If you do not have a solid investment plan, your chances of diverting the loan becomes high and you may land yourself in serious mess when repayment knocks at the door.
2. Determine the Suitability of the Interest Rate
Most of the loans disbursed to business owners come with an interest rate. If you are lucky, you may find a single digit annual interest rate. If not, you may have to deal with as high as 30% interest rate per annum.
Therefore, it is important that you evaluate and determine the interest rate before picking up your loan. You have to also consider whether or not your profit margin is capable of repaying the loan without putting pressure on your business. This is very important if you care about bankruptcy.
3. Determine the Terms and Conditions of the Loan
Banks are not to be completely trusted when it comes to the terms and conditions associated with loans. Banks generally do have a bad habit of printing loan contracts in small fonts. It is a ploy to discourage potential loan applicants from scrutinizing the loan contracts.
Do not fall for that old trick. Instead, read through your loan contracts thoroughly and seek legal opinion before finally accept the terms and conditions of the loan. The banksters may not like you but you would have safeguarded and protected yourself against ambiguous clauses. Don't be like the naive character who pledged his flesh in Shakespeare's Merchant of Venice.
Conclusion
It is easy for any business owner to approach a bank for loan but it is difficult to beat the banksters to their games and to invest the loan amount wisely to avoid crisis and irregular repayments.
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As I my father is in business they consider loan to grow there business and I am also planning to raise loan in near future I will keep this post in mind before applying for my business loan hope it will help me to find better loan options.
Glad you found this article useful and I hope that it can be an abridged guide for your new business. Regards.
Resteemed and upvoted already :)
@tipu curate
Upvoted 👌 (Mana: 5/20 - need recharge?)
The laws of the market are harsh. Scale up or die. But very often, there is no way to scale quickly. At https://www.Londonmoneyman.com I got support for my mortgage payment, and my goal was to grow my business. In a Digital business, the main reason for not being able to scale quickly is staffing. Good people don't just walk out the door and want to work for next to nothing. Training takes time and usually requires so much money. This is real work with an experienced mentor on real client projects. The mistake price is very high: we return 100% of clients' money if they do not like our service. Under such conditions, it is impossible not to take credits
Important data you bring us, really if @gandhibaba
This contribution that you make through this publication, and coming from someone who knows the area of work and the nuances that exist in this area, is very important for those who want to undertake. Asking for loans cannot be a fad, much less do it because someone has already done it. Assuming that responsibility must be because there is already a specific plan, not something you do for the sake of it.
They seem obvious and simple things, but I guess they must be among the most common mistakes made.
Here is a fantastic way to capture the essence of this article. Indeed, the tips here appear too simplistic yet it is one of the most common mistakes which loan applicants make. Thanks for stopping by.
Thanks@ghandibaba
I always try to read a little further than what is apparent, I write with that intention, I guess most of them do too.
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One major problem people put themselves into while applying for loan is accepting a loan with high interest. This is often done because the person needs the loan to solve a business problem and believes the loan and the interest can be paid but it turns out not to be true after the loan has been disbursed.
I absolutely agree with you here because in my half a decade banking experience I have come across this kind of clients many a great time. Unfortunately, the reason you've highlighted here also account for why we see many business owner going bankrupt towards the end of their repayments. Cheers!
I can relate with your post @gandhibaba, I must confess that I have made lot's of terrible mistakes when it comes to applying for a business loan, some of which I am currently struggling to come out from.
The terms and conditions stated by a financial institution as well as the interest rate involved should never be taken for granted.
I will also like to support what @gbenga mentioned, those post are usually taken as a matter of urgency.
Thanks for stopping by @oluwatobiloba. I hope that you're able to come out of your loan adventure as soon as possible. Really, it is not easy taking good loans as many loans out there, especially in Nigeria, are anti-progress. People take it because they have narrow options. And that's where @Gbenga's comment makes sense. Thanks for stopping by.
Securing a business loan is a crucial step, especially considering the challenges with loans in some regions. In Nigeria, many loans are perceived as hindrances to progress due to unfavorable terms. Therefore, it's essential to carefully evaluate options. If you're in Iowa, exploring avenues for free business loans https://www.gofundshop.com/usa/iowa/ can be a game-changer. Iowa offers various programs that support entrepreneurs, and researching these opportunities before applying for a loan is a wise move to ensure your business's success.
One of the problems is high interest and learning to negotiate for the best benefits. Very good tips, I also recommend watching the series "Shark Tank" by Sony channel, because you learn a lot about the business world.
Interesting tips, thanks for sharing.
Glad you found this article worthwhile. And thanks for your recommendation. Cheers!
It's often very important to look at the terms and conditions that comes with loaning, however having a backup plan too to pay a loan is important even if nobody sets out to be a failure in any business adventure they set out to participate in. Well written here I love this
Sure, I agree with you that one must have a back up plan for loan repayment in order not to run into trouble when applying for loans. Glad you loved this article. Thanks for coming around, Bro. Cheers!