It may initially seem difficult to think about taking on debt for something as big as a business. But truth be told, many entrepreneurs can benefit from securing a business loan as long as they’re prepared to take on the responsibility of timely repayments.
Whether you need to purchase new equipment, hire additional staff, or cover your business’s operational expenses, your loan can provide you with the necessary funds to achieve your business goals and even help you become more profitable—all because you’ll have enough cash to seize the most lucrative opportunities at the right time.
But it’s also true that the process can be nerve-wracking, especially for first-time applicants. With numerous lenders out there, and with each offering different terms, interest rates, and repayment options, it can be challenging enough to determine which loan program is the best fit. First-time applicants might also find it difficult to understand the fine print, compare the true cost of different loans, and identify the most reputable lenders.
To ensure that you get a good first business loan that will truly support the growth of your new venture, here are some tips that will serve you well when you start applying:
1. Ensure the lender’s credibility.
Before committing to any loan offer, it’s essential to verify the lender’s credibility. Start by researching the lender’s history and reputation. Look for information about how long they have been in business and what their standing is like in the financial community. Reputable lenders, such as traditional banks and digital banks, will have a solid track record and positive reviews from other borrowers.
Digital banks, in particular, have become increasingly popular options due to their convenience, competitive rates, and user-friendliness towards first-time borrowers. They also offer many of the solutions traditional banks offer. Maya, the leading digital bank in the Philippines, has a flexible business loan that can provide small business owners with up to PHP 2 million in additional funding. First-time applicants can consider Maya Bank for their first business loans.
Reading reviews and testimonials from other borrowers can also help you garner valuable insights into the lender’s reliability and service quality. This will allow you to gauge the experiences of other borrowers and assess the lender’s reliability, especially if you are considering newer or digital banks.
In addition, examine the lender’s website for transparency about their services, fees, and contact information to get clues about their legitimacy. A secure and professional-looking website is often an indicator of a well-established financial institution worth transacting with.
2. Think about the kinds of funds your business needs.
Another step you should take before you apply for your first business loan is to assess your financial needs. Come to a clear understanding of your business’s financial requirements and goals by identifying what the loan will be used for, such as purchasing specific pieces of equipment, expanding your current workforce, or working towards the opening of a new branch.
Once you have a clear purpose, determine the exact loan amount you require. Remember, it’s important to avoid the temptation to over-borrow, even if the lender offers you more than you need. Overborrowing can lead to higher interest payments and unnecessary debt, which can strain your business’s finances in the long run. Commit to borrowing only what is necessary to meet your current business goals and have a plan for how the loan will be used to generate returns.
3. Find out the details of the loan application process and the speed of funding.
The application process and the speed at which you receive the funds are also critical factors for you to consider before you start passing your papers. Understanding the documentation and requirements for application can help you prepare in advance and avoid delays to your receipt of the funding. Keep in mind that different lenders have varying documentation requirements, and you’ll need to make sure you know what each one needs from you.
Next, compare the application processes of different lenders to find one that’s streamlined and efficient enough for you. Some lenders may offer a more straightforward process with fewer requirements, which can save you time and effort in application.
In addition, evaluate the speed at which funds will be disbursed. If you need funds quickly, choose a lender known for fast processing and disbursement. This is particularly important if you want the loan to cover urgent business needs.
4. Consider the total payout amount.
When applying for a loan, you also need to calculate the total cost of the loan or the total payout amount, which includes the principal loan, interest, and fees. You can use loan calculators or consult financial advisors to learn more about the full cost. Once you have this information, compare the interest rates and repayment terms from various lenders, as even a small difference in interest rates can significantly affect your total repayment amount.
You should also weigh the implications of variable versus fixed interest rates. Fixed rates remain constant over the loan term, ensuring predictable payments, while variable rates can fluctuate, which potentially increases the amount you’ll have to repay. Being aware of these differences can help you choose a loan that matches your financial capabilities and long-term business strategy.
5. Research the repayment process.
How and when you will repay the loan is crucial for managing your business’s cash flow, which means that it’s important for you to determine your repayment schedule and frequency of repayments before you finalize your application. Determine if the repayment terms align with your business’s revenue cycle to ensure that you can make payments without disrupting your operations. Evaluate whether the repayment terms are manageable and won’t strain your finances.
Additionally, check for any penalties or fees for early repayment or missed payments. A lender may charge extra fees if you repay the loan early or miss a payment, which can increase the overall cost of the loan. Being aware of these potential charges can help you plan your finances more effectively and avoid unexpected expenses.
Knowing the impact that your first business loan experience will have on your company, be sure to take the time to thoroughly research and compare your options to find a loan that best suits your business needs. As a first-time loan applicant, you can continue to refer to this guide before you finalize your decision and secure the type of financial support your business will benefit from for a long time.