5 Factors that Affect Business Loan Terms
If you are dealing with a bank or lender that is unsure you will repay your business loan, you may face higher fees and interest rates. If you are viewed as a risky borrower, you may not see the desired terms because the financer is trying to justify the risk they are taking by giving you a loan. Understanding what factors may impact your ability to get the right loan for your business is essential.
If you are interested in acquiring a business loan and need to know what factors will affect what you pay, keep reading.
Personal and Business Credit
The main elements of business loans aren’t much different than consumer loans, such as student loans or mortgages. You can expect to have a credit check conducted by a potential lender. If your credit rate is poor, you will likely have a higher interest rate and higher fees on your business loan.
- Your Business Plan
If you don’t have great credit, some good news is that loan terms are not just based on this factor. This is especially true if you apply for lending through an alternative lender, rather than a bank. Remember, lenders want to provide you with financing, but only if you are viewed as “worth the risk.” To help put their mind at ease, provide a comprehensive business plan that outlines how you will use the loan for growth.
- Business History
The possibility of failure for your new business is high. This is a fact. As a result, you may find it difficult to get the financing you need until your business has at least three years of history. If you need financing and traditional banks aren’t willing to lend to you due to your limited history, consider an alternative lender.
- Your Down Payment
How much can you put down? A larger down payment or high level of personal equity in your business may be necessary to show a lender you will repay your loan. If you aren’t able to put up this collateral, the bank may charge you additional fees and interest or give you a short repayment period.
- The Type of Business You Have
Some types of businesses are viewed as riskier than others. Lenders are aware of this. Even if you have great credit and good down payment, you may have higher interest rates if the industry is viewed as risky.
Getting the Right Business Loan
When taking out a business loan, there is a lot to consider. Keep the information here in mind to make the most of your business venture and to get the best loan possible.
