Whether a small business or a well-established one, the need for financial aid can spring up anytime for its growth and for that, most business owners choose to rope in investors. However, sometimes it becomes hard to attract investors and borrowing money from financial institutions in order to pay the expenses comes forth as a viable option. Prior to applying for a business loan, one must familiarize with the types and procedure associated with each kind so as to make an informed decision.
Fixed loan comes with an established interest rate that remain unchanged throughout the loan tenure. So, when the average interest rate of other business loans escalate, the interest rate of fixed loan doesn't change at all. One doesn't have to worry about fluctuating rates. He can be rest assured that he has to pay the same repayment amount every month irrespective of the ongoing rate.
Variable loans, on the flip side, come with interest rates that are vulnerable to market changes. While one avails a variable business loan at a very low interest rate, he may end up paying a larger amount after a year or so. Changing rates completely depend on the market fluctuations and sometimes dramatic changes can increase the amount so much that it may become hard for the debtor to make payments.
Despite being risky, variable loans are often applied for by business owners as they have some benefit for the borrowers. Variable loans are a means of getting money quickly without being choked back to repay large amount each month. As compared to fixed loans, interest rates are very low in variable loans. Due to low interest rates, flexibility of borrowing larger amount and quick funding are the main reasons many business owners are willing to take the associated risk.
The main concern of a lender is timely repayment of the loan and to ensure that he looks into the cash flow of the business. Therefore, one must convince the lender that the business is not facing any problems that may negatively effect its cash flow and he will make sure that loan payments are made on time. The most common documents a banker is more likely to look into are:
Business financial statements
Business plan with budget or projection
Business tax returns
Personal financial statements
Personal tax returns
Banker will go through the collateral in order to calculate the lending amount. The most common kinds of collateral are business inventory, equipment available, accounts as well as equity in one's home. Other than that, the lender will check the track record of the business, number of years in business, size of the company and amount required.
One must do adequate research about different kinds of loans available with various banks. Internet is the right start. One can also ask around to get a more personal advice from experienced people so that he lands in the right spot to get a business loan.
on 27 Oct, 2016
It's like you're on a miosisn to save me time and money!
on 01 Aug, 2016
I'm started a new bizness