MONEY & TECH

How to choose a business loan: 5 factors to consider

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Introduction

Choosing the right bank or lender for your business loan is a critical step in getting started. A good fit between you and your lender will ensure that you get the most out of your money and make sure that no matter how well things go, you’ll be able to pay back what’s due. It’s also important to consider some factors when choosing a bank or lender for your business loan:

The cost of borrowing.

The cost of borrowing is the interest rate charged on a loan. The lower this number, the better—you’ll save money by paying less in interest and avoiding being charged more than you need to borrow.

A standard business loan will have an annual percentage rate (APR) between 5% and 15%. This means that if you borrowed $10,000 at an APR of 12%, your total monthly payment would be about $1,200 per month (12% x $10k). If your APR was 14%, then your monthly payments would be about $1$2,500 every year ($1400/12%).

Your ability to repay the loan.

Your ability to repay the loan. This is an important question, because if you have trouble making payments on time then you might end up in default and lose your business.

If you’re thinking about taking out a loan from a bank or other lender, it’s important that they know how much money you have available in liquid assets (cash on hand), as well as how long it would take for those funds to be depleted if necessary. You’ll also need to show them proof of income so they can make sure that their lending decision isn’t going into debt territory with no way out!

You should also think about what kind of repayment terms are right for your situation: short-term loans are typically paid back over one year; long-term loans may be paid back over several years with interest accruing during those times.

Your business plan.

Your business plan should be updated regularly. If you don’t have a formal business plan, now is the time to create one. The first step in creating a strong financial future for your company is having an outline of where you want it to go and how much money will be required for each step along the way.

The key here is flexibility and adaptability; this means that if something changes—like an unexpected expense or new revenue source—you’ll be able to adjust accordingly without having too many big swings in one direction or another (which can lead down blind alleys). It also means being willing embrace change as necessary; if there’s something new happening at work or in life that might affect what happens next financially (think: moving houses), then make sure all parties involved know about these changes before moving forward with anything else related to finances

Your credit score.

Your credit score is a number that represents your creditworthiness, which is how lenders evaluate whether you will likely be able to repay a loan. Good scores can help you get a loan at lower interest rates and make it easier to find financing for any kind of business project.

Your FICO score is calculated using information from your Experian and Equifax credit reports, which may include information about loans taken out by other companies as well as accounts such as car loans or mortgages. If there are any outstanding debts listed on these reports, they will affect your FICO score negatively because they reduce its reliability when making decisions about whether or not to grant loans or approve contracts with vendors in the future (such as hiring employees).

The interest rate on the loan.

The interest rate on the loan. This is an important factor to consider when choosing a business loan, especially if you’re just starting out and don’t have much money saved up yet. Interest rates can vary widely depending on your credit score, business plan, and ability to repay the loan (the amount of money borrowed).

The fixed-rate loans tend to be less expensive than variable-rate loans because they use less risk in their calculations; however, they also require that you repay your financing in full without any grace periods or extensions. Variable-rate loans are more risky but offer greater flexibility—you may choose whether or not you want early repayment options available before paying off your outstanding balance fully each month over time instead of being locked into paying one high interest rate until it’s paid off completely (or as long as possible).

It’s important to consider a variety of factors when choosing a bank or lender for your business loan

When you decide to take on a business loan, it’s important to consider a variety of factors. The following are some of the most important things you need to think about when choosing your lender:

  • Cost of borrowing. A low interest rate can save you money in the long run by making your monthly payments easier and less stressful. If you’re not able to pay off the full amount of your loan with just one payment, then there could be additional costs associated with extending or refinancing that debt later on down the line (for example, fees for extending or refinancing). This can add up quickly if left unattended!
  • Ability to repay loans quickly without adding too much stress into life as well as other factors like credit scores etcetera…

Conclusion

When you’re doing your due diligence, it’s important to consider a variety of factors. For example, loans come in many different types and with different terms and conditions—even if you’re only looking at one type of loan like a business loan.

Not all loans are created equal, so it can help to understand some basic concepts about what makes up a good or bad deal before applying for one (or more). You should also look into how much risk there is involved in getting this kind of financing through the bank or lender that you choose because some lenders will require higher interest rates than others based on their ability to withstand any potential losses associated with giving out loans.

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