4 Questions to Ask Yourself Before Taking out a Business Loan
Business Loan Criteria
Thinking about taking out a small-business loan? Loans can oftentimes help business owners achieve their financial goals, but not always. Here, we go through several questions you should ask yourself to ensure taking out a loan is the most financially prudent decision for your business.
What do I need this loan for?
It might seem like an obvious question, but it’s probably the most important one you should be thinking about. Maybe you need to consolidate your other loans or buy new equipment. Perhaps you opened your business with the help of an investor and now you’re ready to pay them out. Or maybe you want to open a second location. Whatever the reason, being clear on your exact needs is critical in making a key decision like this. Lenders are going to ask you how you plan to use the money they loan you, and you’re going to have to be as explicit as possible. Detailing your exact needs will also help the lender determine which loan solution is right for you, whether it’s a line of credit, bridge loan, or a working capital loan.
How much do I need to borrow?
After you’ve determined exactly what you need a loan for, it’s important to decide how much money you’ll realistically have to request from a lender. While it’s tempting to want funds in excess of your needs, remember that you are going to have to pay this money back—and the more you take out, the more you’ll owe (and the higher your chances for default become). Knowing the amount you need will also help you choose a lender, as most lenders have a set minimum and maximum amount they’ll loan.
How much can I afford?
It’s one thing to know how much money you’ll need, but knowing how much you can actually afford is a whole other ballgame. Bigger loans equal bigger payments and higher interest rates. So, go over your budget: Think about your business’s monthly cash flow and how much wiggle room you have at the end of the month after all of your bills are paid. Determine how much money you can devote to a new loan payment. Look for ways you’d be able to cut costs in your business in order to make the loan payments more manageable.
How long will I be paying back this loan?
Your “loan repayment term” is defined as the number of months (or years) over which you’ll repay your loan. ARF Financial offers terms up to 36 months, so you can choose which option is best for you (check out our loan calculator for a better idea of your monthly payments—it’s free, and won’t affect your credit score!). Generally speaking, if you want smaller payments, you’ll want to spread them over a longer period of time. But if you want to get out of debt faster, a shorter term is more desirable (you’ll also end up paying less interest, and interest rates may be lower on shorter loan terms depending on which lender you choose).
No matter how you look at it, taking out a small business loan can be intimidating and scary. But our seasoned loan experts at ARF Financial are here to help! We can work with you through all your questions and make sure you’re matched with the perfect loan solution to fit your business’s needs. Your personal consultant will always have your best interests at heart and will remain by your side, even after the paperwork is signed—that’s a promise. Browse our offerings online (you can shop by industry or loan type), and then contact us to learn how we can help you finally reach your financial goals!