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Five Factors You Should Consider Before Obtaining A Business Loan

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@gandhibaba
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Working in the financial industry for several years, I have come across a large number of businessmen who are very skeptical about obtaining business loans. In fact, some of them believe that loans are a form of enslavements, one that could result to business failure.

While I am not saying that some banks and private lenders, driven by greed, take undue advantage of their borrowers, there is no gainsaying the fact that loans are very important for business expansion. A business can hardly grow without the need to obtain loans to finance the business goals.

This article discusses five things you should consider before obtaining a business loan to avoid financial crisis:

1. Your Investment Plan

The first consideration for you to decide whether or not you should obtain a business loan ought to be your investment plan. The viability of your investment plan will determine to what extent the loan will profit your business.

If you have a feeble or unrealistic investment plan, obtaining a loan will be very dangerous because your profit will be insufficient to service the loan. And when that happens, your business could be on the verge of collapsing.


2. The Interest Rate

Even in Freetown, every loan comes with a interest. The lenders are in business because they charge interest on the loans that are being disbursed. That said, you must consider the interest rate to ascertain if it makes sense and aligns with the profit history of your business.

There are lenders who give loans at crazy interest rate that could be as high as 30% or more per annum. Considering the interest rate will help you avoid falling prey to such lenders.


3. The Maturity Period

Every loan has a maturity period. The maturity period refers to the duration or tenure of the loan. Depending on your investment plan or the nature of your business, a short or long maturity could be sufficient or otherwise. So, it is up to you to determination which maturity best suite your business needs.


4. Legal Implications of the Loan Contract

Before most loans are given, the lender and the borrow enters into a contract that binds the actions of both parties as it relates to the loan. A sound loan contract usually states what happens in the event of default.

This is why it is very important for a borrower to consider the legal implications of a loan contract before obtaining a loan. I have seen several businessmen who have lost valuable assets to banks because they entered a bad loan contract.

For instance, there are financial institutions that deliberately undervalue the assets of the borrower, hoping to exploit the opportunity in the event of default. So, a smart lender must compare his collaterals with the loans being obtained as well as the overall clauses in the loan contract.


5. Integrity of the Lender

Remember Shylock in William Shakespeare's The Merchant of Venice? If you do, then you must seriously consider the integrity of the lender when obtaining a business loan. It is always best when you use a lender on the basis of referral. To a large extent, that will help you to reduce the risk of running into fraudulent lenders.

In conclusion, obtaining a loan is inevitable for any serious-minded businessman who dreams of realizing his business goals. Nevertheless, it is important that you don't follow the bandwagon effect when considering whether or not to obtain a business loan. By so doing, you drastically reduce your risk of running into trouble.

Posted via Steemleo | A Decentralized Community for Investors


Posted via Steemleo