Business Loan: 5 Tips to Follow Before Doing It
In times of crisis, such as the one we are experiencing, it is common for entrepreneurs to need to resort to business loans. This can happen either because there is a need to replenish cash flow or because it is the ideal time to expand the business.
However, you need to be aware of some issues before signing the loan agreement in order to ensure the survival and future of your business. This attention ensures that you don’t fall into a trap.
So keep reading our post to find out what you should pay attention to before taking out a business loan.
1. Creditor credibility
It is tempting to take out a loan with the first financial institution you find. But be careful, it is interesting to research the conditions of more than one place.
In that sense, research the credibility of the lender before signing the contract. Ideally, you should do a preliminary research on the regularity of the company in order to find out if there are pending issues with a federal agency, as well as to know about the existence of lawsuits for abusive practices.
This is all because it is important to know who you are hiring with.
2. Contract conditions
Read the loan agreement. In situations like this, it doesn’t matter what the lender’s manager informs you orally, but the conditions provided for in the contract.
So, if you have any difficulty understanding what is written, look for a professional and ask for guidance.
Among the contractual conditions that you should be aware of, we can point out the payment method, the fines and the interest rates per month and per year. In this context, check that the interest is not abusive or that it does not make the payment unfeasible.
3. Deadline for payment of the business loan
Paying attention to the payment method is essential, but don’t forget the deadline. This is because the ideal is to have a grace period before starting to pay the loan, in order to have a time to receive the financial return on the investment of that amount.
Also check the number of installments to complete the payment. It must agree with the reason why you are contracting the debt.
Thus, if the reason for the debt is an investment, the payment period may be longer. However, if it is for working capital, it should ideally be paid in a shorter period.
4. Married sale
It is very common for the manager of financial institutions to try to sell other products and services, such as insurance. This is a way for the company to profit even more from the loan.
When there is an obligation for the loan to be granted only if insurance or other products are contracted, there is a tiered configuration. This type of sale is prohibited by the Consumer Protection Code.
Therefore, you can refuse to offer additional products, as they increase the loan amount and the interest rate.
5. Financial planning
Business lending may be necessary to guarantee cash flow or to promote business expansion, but ensure that it will meet your objectives. And the best way to guarantee this is through financial planning.
In that sense, give the loan the purpose for which it was contracted. And yet, analyze whether the debt installments fit into your budget. Regardless of the purpose of the loan, there is a delay in making a financial return, so be sure of the feasibility of paying the installments.
Late payment can result in significant arrears and make your debt even more expensive.
Thus, taking out a business loan can be extremely interesting and beneficial to the financial health of your business. To do this, just stay tuned to these tips to sign the contract with a trusted company and not to detract from the purpose of the loan.