Common Small Business Loan Mistakes to Avoid

Although small business loans can provide new companies with the cash they need to start business or grow, there are a few mistakes to avoid. Education is the key. Not only is it wise to know the ins and outs of all product options, but also to find the best lender for you. Large organizations have many options, but sometimes a small, local bank is able to offer a more customized and personal relationship. Opportunity is out there for each business. It is worth the time to find it and infuse a company with the cash it needs. The right loan can be a great tool for a business, but the wrong one can be it’s ruin.

Choosing the wrong business loan

If your startup or growing company is in need of some cash flow, small business loans could be the perfect answer. However, there are a number of options available and choosing the right one can be tricky. Educate yourself regarding the details and fine print of each. Some may have attractive rates, but be alert for shortened payback schedules, which could actually hurt you in the end if your short term returns don’t meet your payment needs. A bank can guide you through the details, and the Internet can always offer answers about good options for a business your size and type.

Not dealing with a lender directly

Many believe that a broker will best guide them through the process of reviewing small business loans, because of the one-on-one relationship. However, most brokers earn their income by receiving a commission on particular products. That could taint their opinion and limit your options to only those that benefit them. Instead of limiting yourself, learn what you can during your search and deal directly with the lender. Be sure that your business receives the product that is right for it, and serves it best.

Failing to clearly understand the pricing

Transparency is important in any business transaction, but especially in one that deals with a contract requiring financial responsibility on your part. If too many questions go unanswered or are skirted, that should send up red flags and keep you from signing on any dotted lines. You should be able to clearly see the annual percentage rate and what the loan will cost you, in total, over the life of the loan. Any stipulations about penalties for missing payments, holding payments, or paying the loan off early should also be clearly outlined. Once you sign, your company will be responsible for the debt, regardless of unpleasant clauses that you discover later.

Going with a shady lender

As the old saying goes, if something seems too good to be true, it probably isn’t true. The Internet makes all sorts of products and lenders across the world available to everyone. It could mean it brings a great opportunity to your business’ doorstep that otherwise would not have been available. It could also mean a scam or shady deal is trying to find you. Doing your due diligence and researching the lender to be certain they are reputable is one of your responsibilities when looking for small business loans. Make sure they are transparent and follow best practices. You can also check them with regulatory agencies and see who else they have done business with in your area.

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