The truth is that many Nigerians have lots of fallacies about taking a loan. Some believe that applying for a loan requires high-value collateral or perhaps, it’s time-consuming or only a failing business needs it.
However, it’s not what you think.
Loan-taking has been lots easier these days, especially with the advent of technology. And get this, not only failing business needs it.
As a startup, I would rather you go for a loan to enhance your business than invest a loan in a failing one.
Do you know that you can apply for a loan wherever you are? Yes, you don’t even need to go to the bank or any financial institution.
That got you…, right? Yes, it’s that easy
People take loans due to various reasons; it can be to expand their businesses, for schooling, for cash flow among others. A Loan can come from various sources like banks, credit unions, public funds, or private investors.
The importance of applying for a business loan cannot be over-emphasized. As an entrepreneur or start-up, you need a business loan to start or enhance your existing business.
How do you think businesses, especially small businesses owners survive during a period of economic decline? For instance, the economic meltdown that emerged due to Covid 19 has many negative effects on businesses.
Hence, business owners see the need to seek loans for sustainability and survival. Consider this, a loan can get a business through a tough time.
If you are thinking of getting one, check here for the 7 steps to consider before taking a business loan.
1. Understand the Varieties of Business Loan Available
It’s crucial to know the types of loan to go for; you might get stuck waiting for months to receive the fund you need asap if you choose wrongly.
Also, there are varieties of options depending on your business needs. For instance, equipment loans are granted for purchasing equipment; equipment is used as collateral.
While Small Business Administration loans(SBA) are attractive for business owners who want a low-cost government-backed loan.
However, SBA loans are known for a long application process; it might take up to three months to get authorized to receive the loan.
Nevertheless, it’s a good option If you don’t need money fast and want to benefit from a lower interest rate.
2. Survey the Available Lenders
Do you know that there are great numbers of financial institutions or people willing to lend to business owners? You’re surprised?
Well…, that shows the level of simplicity. All you need to do is to research them. You can even find them through a simple online search.
You may also consider Peer-to-peer (P2P) lending; a means of debt financing that allows people to borrow and lend money without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also includes more time.
3. Scrutinize and Choose your Lender Wisely
Will you do what doesn’t pay you? Of course, no.
So, make sure the proposed business loan makes sense for your business, you will need to analyze the key terms requested by a lender and compare them with terms available from alternative lenders.
Some important things to consider are:
- Interest rate.
- How often is the interest expected, weekly or monthly?
- Is collateral or security needed for loan collection?
- Situations when the lender can call a default on the loan.
4. Provision of Certificate of Business Registration
You will be required to provide proof of business registration to confirm that you have a legitimate business legally operating.
If your business is not registered, you might want to consider getting a personal loan for your business or getting it registered.
5. Availability of financial statements
Prepare your financial statements. It should be detailed and accurate.
Be ready to answer questions on your business cash flow, gross margin, debt to equity ratio, account payable, account receivable, and many more.
6. You Need to Define the Loan Worth and its Usage
How much do you intend to collect? Will the loan be used for procurement or expansion? For hiring or capital expenses?
You should have answers to all these questions before seeking a loan.
7. Have a Business Plan and Be Specific
A business plan will explain how you want to go about that expansion and opportunity which you have identified. Be specific on the major expenses that are required to engage that opportunity and the financial returns that are considerably expected.
Data is vital in this area. So, make sure to use data that is credible and accurate.
Taking a business loan is not as difficult as you think. Business loans are obtainable with a multitude of choices. All you need do is to research the loan that’s best for your business plan and goal.
Rome isn’t built in a day. Certainly, it requires some planning and ways to go about it.
What’s stopping you? I would rather you take that bold step, today than getting disheartening over your failing or unachievable business idea.
CashDrive provides quick loans for business owners, salary earners, and individuals who are registered car owners. You can use your car as collateral while you still drive it. And get disbursed within 24 hours.