How to Decide on the Right Business Loan for Your SME
You got one shot to get it right – How do you decide on the right business loan for your SME? Dive into our guide to streamline your payment processes.
You got one shot to get it right – How do you decide on the right business loan for your SME? Dive into our guide to streamline your payment processes.
For all small-business owners, you’ll need to choose the kind of business loan to meet your long-term strategic goals.
Like with all critical decision-making, knowledge is power – and this is especially true when it comes to choosing the right business for you.
Small-business owners must consider the following factors: The loan amount; how repayments are affected by interest rates; a projected timeline of the duration of loan repayments; the processing time involved; and whether any penalties come into play.
What loan amount can a small-business owner safely and efficiently afford to repay? The loan amount is the single most important factor in determining your business loan.
It’s also an exact science. In other words, you should borrow only the set amount needed to prevent your business from becoming overwhelmed by a barrage of loan repayments.
Take care to make sure that how the loan is used will fulfil the business loan’s outlined purpose — including the repayment processes and requirements.
As a business owner, once you’ve successfully applied for a loan, you should be aware that interest rates go hand-in-hand with monthly or fortnightly outflows, until the loan gets fully repaid. So it’s key to be on top of your repayment capabilities.
This means being acutely aware of the interest rate percentage that the business can safely repay. Make sure the interest fees aren’t eating into your business profits.
Borrowers must also keep in mind that a larger loan means larger repayments. While larger loans can be tempting for small businesses, you should first consider whether you’ll be able to consistently repay these loans, no matter how high the interest rates may be. You don’t want your business to struggle to pay off the loan.
Again, you’ll need precise estimates to work out the best duration of your loan repayment.
Once the loan duration has been determined by financial advisors, small business owners have to make sure that the loan is repaid during that specified duration.
Timing is everything. As a business owner, you have to make sure you repay your loans on time. This saves money in the long term by stemming unnecessary interest outflow. After all, what business owner wants to pay more money in paying off their loans?
Part of applying for a business loan is assessing how urgently you need the business loan. How will a loan help you meet strategic objectives, such as growth or cornering a market niche?
The urgency of the loan will dictate the processing time. Small business loans can come with varying processing times, depending on the type of loan and which lender will be approving the loan.
Which is the more pressing need for your business loan, streamlining or customisation? Consult relevant financial figures to determine whether you need the loan processing time to be made shorter or longer, as need be.
Preparation holds the balance of power. You’ll need a list of all the documents involved in applying for a business loan, to further reduce the loan processing time. Ideally, you’ll have all these documents ready before you apply for the loan.
“Time is money” isn’t just a cliché. Having the essential documentation at hand can help the loan to get approved in the most expedient amount of time possible.
While it’d be ideal for any kind of business to repay loans at the shortest duration possible, there might be unavoidable cases where a business can’t repay its loans on time – or at least for one repayment period. This is why business owners should consider the penalties and charges that come with every business loan.
Small-business owners need to read the fine print, especially the penalty clauses that may come into effect. As you’re well aware, small businesses don’t have unlimited budgets, and unforeseen penalties can be a nasty surprise when paying off in lieu of any missed payment periods.
Missing payment deadlines leads to heavier repayments, so make sure you’re aware and prepared, by knowing what the penalty clauses are. Small-business owners should also negotiate, wherever possible, with loan agents to make any penalties manageable and/or achievable.
What’s the most effective way to keep on top of your loan repayments? Keep on top of the money coming in.
If you’re juggling manual invoices and spreadsheets, it may be hard to get a clear picture of your business cash flow at any one point in time. If you’re looking to digitise your payment processes for clarity, Payleadr is the custom tool for SMEs like yours.
Payleadr helps small businesses to receive recurring direct debit payments. If your business works on a subscription model, whether gym or beauty salon, you can customise and create payment plans — so it’s effortless for your customers to pay you, and you always know who’s going to pay what when.
Contact us to automate your subscription payments and smoothen out your cash inflow.
