There are various considerations in selecting the proper finance source including attached risk, the flexibility of repayment, the cost of finance and dilution of control. When evaluating and comparing several alternatives based on these vital factors, you will manage to create a favorable capital structure for your enterprise. Many businesses focus on the interest rate alone without considering other factors when getting a loan. Even if the rate of interest is critical when finding a business loan, you should not ignore other factors. Shopping around and comparing the different loan products provided by several lending institutions is advised. It is important to check on the loan authorization procedures and policies, types of loans offered by different banks, flexibility and if there are account managers specialized for your business type.
Firstly, you should consider the requested guarantees in the case of default. The bank can take your case to court to get the selling rights of the collateral if you default on your loan. Collaterals comprise of pledges and aliens, accounts receivable, personal guarantees, real estate, inventory, and third-party guarantees. The collateral type provided is dependent on your entity nature, the freedom of negotiating and the terms and conditions of the bank. In case of default, you know the assets you are risking.
There are various considerations in selecting the proper finance source including attached risk, the flexibility of repayment, the cost of finance and dilution of control. When you evaluate and compare various alternatives based on these important considerations, you will be able to build the best structure of capital for your business. In addition to that, when applying for a business loan, a wide range of businesses focus on the interest rate solely without considering other factors. Other factors should not be ignored, as much as the rate of interest is important when selecting a business loan. Shopping around and comparing the different loan products provided by several lending institutions is advised. It is necessary to confirm the authorization procedures and policies, types of loans given by various banks, flexibility and if there are account managers particularly for your business type.
It is imperative to check the required financial and reporting obligations. Several loan terms have financial report responsibilities that ask for reports and statements to be made to the bank yearly. When you apply for small loans, the needless requirements of reporting. In addition to that, breaking of a covenant made between the bank and the borrower can lead to the bank demanding the whole loan back.