Small Business LoanSmall Business Loan Process

Whether you’re starting a business or have been operating for a few years, there’s probably a time you’ve thought of applying for a small business loan.

At Your Bookkeeping Department , the topic of borrowing capital comes up pretty often. The reason?

When business owners have their well organized and everything is tracked correctly, they can clearly see their company’s strength and weaknesses. This status snapshot allows them to leverage funding as an extra source of income for more growth.

But Your Bookkeeping Department reminds you that not all small business loans are created equal. There’s a lot of factors to consider, from the type such as an SBA loan or peer-to-peer loans, to your annual percentage rate (APR) and so much more.

So let’s dive deeper into the topic so you can make better, informed decisions for a stress-free, profitable future.

Small Business Loan Tip #1: Apply for Just 3 Loans

As previously mentioned, there’s a multitude of loans including conventional bank loans, line of credit loans, balloon loans, interim loans and the list goes on. When faced with so many options, small business owners tend to what to apply for it all. But Your Bookkeeping Department reminds to tread carefully. Because the more loans you apply for, the more the process can hurt your credit score, which ironically enough, hurts your chances of actually qualifying for it.

So how does this happen? Every time you apply, your credit is checked, which can decrease your overall credit score by a few points. Every time! So what you can do is first take a close look at the actual lenders’ qualification requirement as well as their credit check policies, then decide to apply for three. This also tends to happen when people are shopping for homes, every time their credit is pulled, the score is affected.

Small Business Loan Tip #2:  Understand the Cost of the Loan

Depending on which lender provides your small business loan, its payment will be described to you in different ways. Some will choose to talk about the interest rate on it, while others will talk about the total it will cost you when you finished paying it back. Your bookkeeping company suggests you inquire about the APR for a more convenient way to compare the three bids you get. APR is basically the total cost of the loan over a year, including all fees.

So for example, an SBA loan can range from about 6 to 9 percent. The range changes depending on factors such as low credit, the duration of the loan or even the lender who perhaps promise a faster process. This is why it’s important to shop around, and look at various options. When it comes to small business loans, one size doesn’t fit all.

Small Business Loan Tip #3: Comprehend What Assets You May Be Risking

Getting a loan typically means certain assets are at stake, since lenders are always looking to secure their “investment” with collateral. So if you don’t pay off your loan, they can seize property, machinery, inventory, whatever was placed as collateral when you signed the paperwork. Even if no collateral was required, your lender may need a personal guarantee which means your personal assets like car or home, may be seized if default on your loan.

Small Business Loan Tip #4: Find Out About Prepayment Penalty Fees

Small Business InventoryIf all goes well and your business grows, there’s a great chance that you can pay off your small business loan faster than intended, thus reducing the amount of interest that your lender would have pocketed. So a prepayment penalty fee is what your lender will charge you if the loan is paid off before the due date. Typically, this penalty is about 2% -3% of the outstanding balance.

But in some cases, a prepayment penalty fee can also be on a sliding scale, where the earlier you paid it of the higher the penalty. Your Miami Beach bookkeeping company reminds you that an SBA loan doesn’t have prepayment penalties at all, so it may be worth looking into as a first choice.

Should you need help navigating your small business loan process, reach out to a bookkeeping company like Your Miami Beach Bookkeeping Department for trustworthy advice and direction. Manal Oliver, founder of MBBD is not only an expert bookkeeper with countless years of experience and strong community relationships, she’s also a professional accountant so her advice goes a long way.

Good luck on your small business loan hunt!