You have a lot of options open to you when searching for small business loans. Make sure you run a full comparison before you make your choice.
Your company needs a business loan and you’re preparing yourself for the application process.
But are you sure that you’ve found the right loan? What happens if you’ve applied for a business loan, only to find that it isn’t fit for your needs?
One restaurant owner found out…
The owner of a restaurant decided to take out a business loan with a major bank. The loan terms seemed fair, though the business owner didn’t pay much attention to the terms and conditions.
They went ahead with the loan with confidence. After all, the restaurant recorded solid new profits and had several assets to its name.
And all went well…for a while. The problem came when the business owner wanted to renew the loan. The bank refused, leaving the business owner in a position where they had to repay the remainder of the loan in one go.
Thankfully, that restaurant owner managed to find another, more suitable business loan. However, their story highlights the importance of understanding what you’re signing up for. And to do that, you need to know how to compare business loans.
These are the four tips that will help.
Tip #1 – Consider Future Interest Rates
Let’s say that you have two loan options available to you. One of them carries a slightly higher interest rate than the other.
That seems to make the choice obvious. You’ll go for the one with the lowest rate to reduce your monthly repayments.
However, that could set you up for a fall later on. For example, the loan with a higher rate may also have that rate fixed for five years. The loan with the lower rate may only have a fixed-rate period of two years before moving to a variable interest rate.
It’s possible for the variable rate to end up being higher than the fixed rate on the other loan. As a result, you actually end up paying more on the loan that started with the lower rate.
The point is that you have to look beyond the initial offer when comparing interest rates. Look beyond higher interest rates to see if the loan works out better for you in the long run.
Tip #2 – Look at the Entire Package
Not every loan offer will provide you with the same features.
For example, you may have a loan that offers a line of credit. Or, the lender may offer a business overdraft on your account to sweeten the pot for your loan.
These added features sound great. However, they typically come at the cost of a higher interest rate. Plus, they may have fees attached to them that make them difficult to use.
This isn’t to say that you should avoid additional features when looking for a loan. The key is that you consider what you need instead of accepting features just because they sound good.
Examine the entire package when looking at a loan so you understand what you’re getting and what it may cost you.
Tip #3 – Research the Lending Criteria Beforehand
Every lender has its own criteria in place that determines whether or not they accept your loan application.
The problem comes if you try to apply for too many loans or lines of credit in a short space of time. This could have a negative impact on your company’s credit score.
The reason is that lenders will see multiple applications and assume that you’re finding it hard to get a loan or line of credit. They may make inquiries of their own, which could lower your credit score even further. Ultimately, your multiple applications end up making it even harder for you to get a loan.
This is why it’s so important to research a lender’s criteria before lodging an application. You want to feel as sure as possible that your application will get accepted so you don’t have to apply elsewhere. Lenders may take everything from your financial status to the type of business into account.
When comparing business loans, examine the criteria as well as the offer. You may find that a large money offer comes with criteria that you’re not confident of meeting. In such cases, it may be better to go with a lower offer for the more favourable criteria.
Tip #4 – Unsecured Business Loans vs. Secured Business Loans
The choice between a secured or unsecured loan is one of the most important that you’ll make.
To make the right choice, you need to know what you’re getting with each loan type.
Secured loans are the most familiar and they’re what the major lenders will offer. Typically, they involve you placing an asset that you own up as security on the loan. For example, you may use your business premises as security for a small business loan.
Of course, this means the asset gets placed at risk if you default on the loan. However, that added security also increases the lender’s confidence. As a result, you may find that this type of business loan comes with a lower interest rate and more favourable terms.
With an unsecured loan, you don’t have to place an asset up as security on the loan. This makes the loan ideal for new businesses or those that don’t want to risk losing valuable assets.
Of course, not having an asset as security increases your risk as a borrower. This typically manifests in higher interest rates and restrictions on the amount you can borrow. However, these issues often depend on the strength of the business.
It’s crucial that you consider your business’ circumstances before choosing which of these loan types to go for. Each has its own pros and cons and you’ll usually find that one’s more suitable for your business than the other.
Choose Your Business Loan
With these tips, you now have a better idea of how to compare business loans.
The key is that you always consider your company’s circumstances before making your choice. A loan product that works for one business may not work for yours.
Perhaps you’ve decided that an unsecured business loan is right for your company. That’s where we can help you.
With Unsecured Finance New Zealand, you can access loans of up to $300,000. We also offer flexible repayment periods and can provide approval within 24 hours.
Are you ready to get started?
Apply online today to find out if you’re eligible for one of our unsecured business loans.
