Getting a business loan is not an easy process. From finding out which options are available for your business to which of these packages best suits your needs and have the best interest rates, applying for a loan can be quite challenging. That’s why every loan lending entity has an in-house expert to guide you through every step along the way.

There are various reasons for which businesses need to seek loans. Whether it is for purchasing stock, for opening a new store, for a new marketing campaign or due to unexpected expenses, the business will need to prepare a detailed business plan. This will tell the lender everything they need to know about your proposed venture, making it easier for them to advise you about the type of financing that is best suited to your needs. But sitting down with that adviser for the first time and having them lob complex jargon terms at you can make it even more confusing and you might just end up not getting the deal you really wanted. So, this post is designed to ease you in and help you go to that first appointment on a better footing.

Once you’ve come to the decision that your business needs a loan, you’ll need to determine the amount you’ll need to borrow, the type of loan you need and for how long will you will need it. You then have to determine if your business can afford to repay the amount borrowed, including interest and any other additional fees, such as application fees, exit or discharge fees and early termination fees. Try using the online repayment calculators lenders offer on their website to assess your monthly repayments. Consider looking into the type of security you can offer for the loan because most lenders will expect that. In some cases, if the type of security you are offering is satisfactory, the interest rate may even go down.

Depending on the number of times you’ll need to access the borrowed funds, you can choose to go for either an ‘at call’ loan or an upfront loan. ‘At call’ loans are overdrafts or line of credit that you can access to withdraw money even if your account is below zero. It will help keep your business running while waiting for your clients to settle their debts. This type of loan has no fixed terms and the higher the amount borrowed, the higher the fees will be. Additionally, unless otherwise stated in your contract, the lender can demand at any time that you pay back the whole amount borrowed.

For upfront loans, on the other hand, the entire loan amount is made available to the borrower all at once. This is generally the option you’ll want to pick if you are planning on buying a new business or buying equipment for your business. Unlike ‘at call’ loans, upfront loans will require that repayments are made regularly. However, the longer the loan term, the more interest you’ll end up paying. It would be advisable to calculate the repayment amount your business can afford to service so you can determine the amount you can borrow and for how long.

The next thing you might want to consider is the interest rate that will best suit your business. Rates can affect the repayment amount and the total amount paid at the end of the term. Unlike with variable rate loans, with fixed-rate loans, the lender bears the majority of the risks. If you believe your company will be able to pay back the loan even if the rates climb, a variable rate loan may suit you. However, if your business has a low-profit level, you might want to stick with a fixed-rate loan as the predictability of the monthly repayment will help you better manage your cash flow.  

Lenders also offer you the possibility of securing your loan. While you may choose to take an unsecured loan because you don’t have an asset that you can offer as security, these types of financing usually have higher interest rates and are more difficult to get approved. However, secured loans involves offering an asset for the loan. The asset can be a property, such as residential or commercial. In most cases, the more security you provide, the less the interest rates will be and the higher the chances are of getting your request approved.

So essentially, it burns down to:

• deciding how much you need for your project,
• calculating what you can actually afford to pay back,
• choosing between fixed or unfixed rates,
• and choosing the type of loan security you will take.

You just need to ensure that you will be able to repay your loan on time, so that the lender does not seize the property or asset you offered as security and sell it.