A business loan can help provide a much-needed cash injection to push ahead a stalled project or fund an expansion. Whether you’re already well established or just a fledging startup, there are various financing options for your business.
It can be tempting to rush out and grab a new loan, but before seeking ANY type of loan, there are some essential factors you need to consider, which we outline below.
As well as understanding the different loan types and you chosen loan’s requirements you need a properly laid out plan to determine how you’ll use the money as well as a budget on how you’ll repay it.
You also need to understand whether the loan program is the right way to serve your financial needs. Carefully reviewing the various loan offers can help you save money and avoid potential roadblocks that could affect your business’s future.
Keep reading to learn more about business loans if you’re self-employed
#1 – Loan Type
Before choosing any business loan, knowing how to choose a loan for your needs is crucial. Generally, the most popular funding options are as follows:
Traditional loans: These typically come with set terms and amounts which differ depending on the lender. These loans have strict eligibility criteria, and their approval can take several weeks.
Lines of credit loan: This refers to an arrangement between a lender and a borrower that establishes the maximum amount a person can borrow. With this, you’ll have to set an amount you can borrow against and comfortably repay as required. This type of loan can take a couple of days to several weeks for approval.
Equipment financing: This is ideal if you’re looking for a loan to finance equipment purchases. Australian lenders offer affordable business loans for self employed Aussies to help with equipment financing.
Small Business Administration (SBA) loans: They generally have reasonable rates and repayment terms. These loans are ideal for individuals who can’t qualify for traditional bank loans. The catch: their approval process might take weeks or months.
When looking for a self-employed business loan, researching and weighing the pros and cons of all your financing options is needed. You want to get the most appropriate financing option for your business and not make any hasty decisions that might hurt your business down the track.
#2 – Lender’s Reputation
Every business lender has their specific terms. Some lenders might have offers that seem reasonable but they turn out to be quite risky. Below are some red flags you need to look out for before applying for a self-employed business loan:
- The lender lacks a minimum credit score requirement or doesn’t require checking your credit score
- The lender doesn’t have a physical address or a professional website
- Their sales representative is pressuring you to accept their deals immediately
- They hide their loan fees, making it unclear how their financing might cost your business; and many more.
Therefore, you should always research the lenders’ websites and read their reviews before signing on the dotted line.
#3 – Collateral Requirements
Some lenders offer secured loans, meaning you have to back the loan with collateral. This mean, if you default on the loan, the lender would have to seize your collateral as repayment.
If the loan you’re applying for requires you to secure it with collateral, consider if you’re ready to risk your assets. If not, your best funding option would be getting an unsecured loan instead.
#4 – Repayment Terms
It might sound simple, but you also need to consider whether you can comfortably pay the loan back according to the repayment terms.
If the monthly payments are more than you can afford or you feel like you might miss some payment deadlines, it’d be wise to look for a more affordable business loan. Applying for a loan you can afford to repay is an essential tip for securing a loan safely.
#5 – Payment Process
Understanding your lender’s payment process is also key. Are the repayments weekly, bi-monthly, or monthly? Further, you need to know how you will make the loan repayments. For example, if the lender requires you to make automatic withdrawals will you be able to commit to it? If not, it’d be wise to get another loan offer.
#6 – Borrowing Amount
Lenders can sometimes offer amounts that won’t cover your funding needs fully. On the other hand, it can be tempting to take more money than you really need.
Making a plan about how you intend to use the loan will help you decide whether the loan you apply for is enough, too much, or too little. If your loan offer isn’t enough to help you achieve your goals or makes you overextend, then find an alternative lender.
Some loan offers might seem appealing but, truth be told, they benefit the lender more. When looking for a self-employed business loan, only commit to one that closely meets your financial needs and contributes positively to your business’s future.