You need to know how to find the best loan for a small business startup before borrowing. You must ask yourself these questions:
- How much loan does the business need?
- How will I repay the business loan?
- Is taking a business loan the best idea?
Finding answers to the above questions will help you determine how much, what kind of loan to borrow and if it is necessary. Apart for borrowing, there are other ways you can fund a startup.
How to Apply for a Business Loan
Before applying for a small business startup loan, you need to determine how much you need to borrow. Once you have the figure, the next setup is to compare different business loan providers, their interest rates, repayment period and their terms and conditions.
To avoid wastage of time, visit the lender and ask what documents they need during the application for a small business startup loan. Make sure to carry your business plan because most lenders will want to know if it is a risky business. Ask whether your business is eligible to get a business startup loan. Request the customer service to help you fill in the application form. In case you need further assistance, reach out to the customer service.
Requirements for a Business Loan
There is a criterion that most lenders use to determine whether a small business startup qualifies for a business loan. You need to meet the following requirements:
- High Credit score. Most of the business loan providers consider a credit score of at least 680 to advance a business startup loan.
- Have a viable business plan. Your business idea must not be a risky business and it must show high prospects of making good returns.
- Non-bankruptcy. No lender wants to give a loan to a borrower with a record of non-repayment. You must demonstrate that you can repay the loan.
- No late repayments for loans. If you have a record of late repayment for your previous loans, it will be challenging to qualify for a small business startup loan.
What to Look for in a Small Business Startup Loan
When borrowing a loan for a small startup business, you need to look at some factors such as fees. These are things that every borrower needs to know before borrowing a loan.
- Loan duration. Get to know the minimum and the maximum repayment period of the loan. Then consider if you are in a position to repay the loan within that duration.
- What is your credit score? Know your credit score and compare it with the lender's loan eligibility credit score.
- Lender's reputation. Ask from other borrowers or look at online reviews on platforms like the TrustPilot. See what people that have previously borrowed say about the lender.
- How to repay the loan. You must have a plan of how you will repay the loan. You must demonstrate to the lender that you are in a position to repay the loan.
- What are the terms and conditions of the loan? You need to know what happens in scenarios that you can't repay the loan. Are there late repayment fees and hidden fees; is there a penalty for prepayment?
Make sure to ask the lender these questions before borrowing a small business startup loan.
Loan Fees You Need to be Aware of
Ask the lender concerning all fees related to their loans. Some loans may have hidden fees and the lender may not tell you. As such, if you can find a person who has previously borrowed a loan from the lender, he can tell you. Here are some of the fees that you need to be careful about.
- Loan origination fees. These are fees you pay to the lender to process your loan application. Some lenders charge one percent of the total business startup loan. Avoid such loans since they increase the cost of your loan.
- Prepayment fees. These are charges that you pay in case you repay your loan early. Not all lenders charge these fees.
- Failed payment fees. These are charges in case you do not have sufficient balance for a payment that you made.
- Late payment fees. Late repayment will negatively affect your credit score, while you will also incur a cost. Avoid late repayments so that you can build up on your credit score and also make your small business startup loan cheaper.
Also read: How to register a business in Kenya.