Perhaps you’re looking for a small business loan to help you buy new equipment or open a new location for your company. Perhaps you’re looking for a loan to use as a financial cushion during a quiet period in your business. Regardless of the circumstances, taking out a small company loan is a significant choice that should not be taken lightly.
You’ve most likely been looking at several business loan choices. You might even have an offer or two in front of you at this point in the game. Nevertheless, how can you determine whether or not a company loan offer is appropriate for you? When considering a loan offer, there are four things you should look for in particular.
1. The entire amount of money that will be reimbursed
The total payback amount is a monetary figure that indicates the sum of the loan’s principle plus all associated charges (including interest, origination fees, credit reporting fee, application costs, etc.).
It’s a statistic that, for the most part, is much easier to comprehend than the annual percentage rate (annual percentage rate). In fact, according to a poll conducted by Lendio, the majority of borrowers prefer to view the total payback amount rather than other measurements of loan cost.
Here is an illustration of ultimate payback: In exchange for $150 in financing fees, you will be offered a $1,000 loan at a rate of 10 percent annual interest over three years. As a result of such stipulations, your total payback cost is $1,335.86 for the $1,000 borrowed if you pay it back over the course of three years in monthly instalments.
Knowing the total amount of money that will be repaid assists you to decide whether the cost of a loan is truly compatible with your company’s budget. Square Loans clearly displays the total amount you owe as well as the overall cost of the loan, allowing you to understand exactly how much you’ll be paying before applying.
You might be wondering what the distinction is between the total payback amount and the annual percentage rate (APR).
The annual percentage rate (APR), often known as the yearly cost of borrowing money, is calculated by averaging the annual cost of borrowing money throughout the whole loan duration. The annual percentage rate (APR) comprises interest costs and any other financing fees, and it is expressed as a percentage, which might be more difficult to comprehend. Assuming that you apply the same three-year loan example from earlier ($1,000 loan at ten percent yearly interest for three years, plus $150 in finance fees), the annual percentage rate (APR) is 19.9 percent.
However, comparing different loan offers merely on the basis of their APR does not necessarily result in a fair comparison, as we’ll see below. If you have any other fees that you may be charged, such as late fees, prepayment penalties, NSF fees, and penalty interest, you should carefully review them. These fees, which can significantly raise your loan cost, are often not included in the APR disclosure.
Therefore, rather than evaluating only the offered rate, it is critical to consider the whole repayment amount — which includes all expenditures in absolute dollars — since this will eventually determine your budgetary implications.
2. The speed and convenience with which an application and funding can be completed.
Applying for a company loan can be a time-consuming process. It is possible that you will be required to complete a significant amount of paperwork and present numerous supporting papers. Depending on the application, you may even be required to utilise an employee’s time in addition to your own in order to finish it. If you don’t have the extra time and money, you’ll be out of luck.
Be sure to calculate how much time you have to devote to the loan application process and whether you require the funds by a specific deadline before you begin. Certain lenders may reject your application based on how quickly you can submit it and how long it takes to obtain the funds.
Square Capital’s loan application can be completed in as few as a few clicks if a seller is eligible to apply for a loan with us. Within one business day of receiving approval, monies are sent into a bank account of your choosing.
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3. The ease with which the loan can be repaid
When comparing loan options, the ease with which you can repay your loan should be the first thing on your mind. To determine whether you need to set up a particular process for making payments or whether you may enroll in automatic payments, you should consider the following: You should also be aware of any fines that may be imposed if you pay early or late.
Make sure you understand how the needed payments are calculated before proceeding. For example, with a flexible loan from Square Capital, repayment is dependent on a fixed proportion of your credit card sales. You will pay more when sales are high and less when sales are low as a result of this.
4. The lender’s reputation and dependability are important considerations.
Before doing business with any lender, you should conduct due diligence on the company. Check to see if you’ve heard of the lender before and if it has received great feedback from previous borrowers. That could entail conducting an online search to determine consumer contentment and lender dependability, or it could entail seeing how frequently borrowers return for a second loan. Ninety percent of those who are offered a second loan through Square Capital accept it. First and foremost, you should have no doubts about the reliability of your lending institution.