You’re presented with numerous funding options for your business and loans are widely regarded as the best. They’re easier to obtain than other funding methods and the terms are fairly clear-cut. You’re not handing over any shares in your business; you simply request money and repay it.
On the surface it seems so simple – but there are many ways to create catastrophes when applying for business loans. This post will walk you through some crucial ideas to avoid the most common causes of catastrophic business loan events.
Only obtain business loans from credible financial institutions
It’s tempting, but don’t get a loan from a loan shark. If someone offers you a business loan – yet they don’t work for a credible financial institution, you should avoid it at all costs. This is the easiest way to get scammed or roped into a contract with absurd terms and conditions.
For your safety, only go to banks or building societies to get a loan. They’re the safest institutions and you have one less thing to worry about as you know the loans are legit.
Read through all terms and conditions
A business loan isn’t a traditional business negotiation as you’ve got zero bargaining power. You can’t read through the terms and try to haggle for a better deal. Lenders outline how much you’ll borrow, what it will cost and what fees you pay if you miss the monthly payments.
Still, you should read all the terms to understand what you get from your loan. Pay close attention to interest rates – check that your rate doesn’t skyrocket massively after a few months or years. Also, double-check what type of business loan you’re getting. If you think you’ve got an unsecured loan but it’s a secured one, it can end in a catastrophe.
Notarise the loan documents
Notarising loan documents means they are authenticated by a third-party individual. It helps you see that the agreement is valid and legal, meaning there’s less chance of disputes happening in the future. It basically provides you with a new layer of protection and you can find a local notary public to do this for you.
For instance, if the lender tries to charge additional fees that weren’t outlined in the contract, the notary can provide evidence on your behalf. They’ll state that these fees were not included in what you signed, therefore you are not legally obliged to pay them.
Improve your business credit score
Having a good credit score helps you avoid catastrophes by making you eligible for more affordable loans. Businesses with bad credit will either not get approved for loans (which is a catastrophe in itself) or be put on plans with crazy interest rates. It’ll mean you pay way more for the loan than you otherwise would with a better credit score.
Business loans sound simple, but they’re highly complex and you can end up in terrible situations if you’re not careful. Approach any loan with caution and do your due diligence by comparing legitimate lenders and finding the best loan terms for your company.
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