June 25th, 2015
If you’re a small enterprise or a new start up, you may be finding it confusing to choose the right business finance for your needs. The good news is that securing a great business finance deal doesn’t have to be difficult. Here are 3 aspects that every SME should look for in a small business loan:
According to Elite Business Magazine, more businesses are opting for fixed interest business loans than ever before to avoid ever rising rates, and this type of loan could be very beneficial to small businesses, particularly start-ups and SMEs. Small businesses need to have a thorough grasp of their monthly outgoings in order to budget effectively for business growth and development, and an unexpected spike in interest rates can have a very big and very detrimental effect. While there is a chance that rates could reduce, for small businesses it might be worth paying a little more for the added security that comes with fixed rate business funding. Look for small business loans that offer fixed rate lending at a competitive price – you can find the best deals by comparing loans online.
Uncertainty and unpredictability are two aspects of business growth that many SMEs and start-ups know only too well! While some businesses may struggle initially, others may experience unprecedented successes that leave them with the means to settle existing debts and become a more attractive option for potential clients. No business owner knows what’s going to happen, which is why it makes sense to leave your options open, and give yourself an opportunity to repay business loans earlier than planned without being penalised for your actions. Some commercial finance lenders do apply fees for early repayments, so look for small business loans that clearly state that they will not charge early repayment fees should you wish to pay off your loan a little early.
Once again, it’s important that SMEs acknowledge that there is a certain level of uncertainty that comes with running a small business and, it’s even more essential that businesses take measures to protect themselves should the worst happen. An inability to repay agreed monthly fees can negatively impact credit ratings and make it all the more difficult to secure commercial financing in the future, which is why a safety net is recommended. Many banks offer flexible repayment terms which often include features such as 6 month repayment holidays that give businesses time to address financial situations and rectify problems without damaging their financial reputation. By using price comparison tools online, it’s simple to find business finance lenders offering these deals.
Imagine this – you’re an ever growing SME, and you need a little extra cash to further develop your business – so what do you do? Shocking reports suggest that more businesses are still turning to overdrafts over small business loans, with 28 percent of small and medium enterprises using an overdraft compared to just 11 percent who opt for dedicated business finance, according to the Department of Business Innovation and Skills. The reasoning is quite simple – on the surface, overdrafts seem like a better deal – but are they really as good as they seem?
A common mistake many businesses make is that they think an overdraft automatically offers a better deal than business loans because there’s no interest rate – they won’t be paying over and above what they borrow. However, as we know, that’s not true. While interest isn’t charged on overdrafts, overdraft fees are applicable and, in many cases, these fees can work out more expensive at the end of the day that a low interest small business loan. In fact, it’s been reported that in the past some banks have charged businesses the equivalent of an 800,000 percent interest rate on overdrafts, when the interest rate for business loans can be as little as 8 percent!
Overdrafts can be beneficial for businesses at times when an unexpected charge has affected budgeting, but for planned long term growth, business funding will usually always be the more cost effective option for SMEs. By choosing small business loans that are specifically designed for growing SMEs and emerging industries, businesses can fund growth and development through marketing campaigns, improved resources, and expanding staff numbers, helping to improve both online and offline visibility and awareness and increasing reputation, customer satisfaction and, ultimately, profits.
Believe it or not, banks aren’t out to punish SMEs, and there are many commercial finance deals available that can fit in with your current needs and requirements. The best way to find suitable business finance is to compare interest rates, plan features, and fees through online price comparison tools that compile all the information you need, doing the hard work for you. These handy tools can clearly display borrowing amounts, repayment terms, interest rates, and arrangement fees from major commercial financing organisations to help you find the best business finance deal.