Calculating the cost of a business loan

There are many reasons why a business would want to get a business loan: to buy real estate, to invest in new business equipment, or to bring on new talent for the betterment of your business. Whatever your reason for wanting a business loan is, it’s important to accurately calculate what the loan will cost you. Remember that it is perfectly acceptable, and should be part of your regular due diligence, to “lender shop” to ensure that you get the business loan that is a good fit for your company.

Amount and Term of the Loan

As with any sort of credit, your business loans need to be repaid and at terms that are acceptable to the lender. Although it’s important that these terms are also acceptable to you and your business plan. If the lender is willing to offer your business a longer repayment period, this may allow you to make smaller incremental payments which keeps more cash in your company where it’s needed.

Repayment Penalties

It’s also important that you discover ahead of time if your bank is flexible with their repayment expectations. Prior to taking out a loan be sure to know what, if any, penalties exist should you be unable to make a payment at a scheduled date. This could be because the business is having financial difficulties or the imminent need for cash in other areas. It’s also prudent to ask if there are penalties for paying off a loan sooner than the agreed-upon repayment period should the opportunity arise.

Infusion Needs

Knowing how much the lender is willing to loan to your business is key information to have. If your financial needs are greater than what the lender is willing to provide, you may need to seek additional lenders or invest your own money if need be.

Is Collateral Required?

Some business loans require collateral to guarantee your loan. The risk of potentially losing the assets you put up for collateral should you default for any reason can be a huge gamble for your business. You need to weigh the risk factors of losing your collateral if you can’t make your payments against undertaking the loan at all.

A business loan can be the infusion of cash you need to get your business where it needs to go, but you need to be certain it’s the right fit for your business. Speak to a financial advisor if you need additional advice on the risk factors of your loan or to talk about the different loan options available to you to help your business thrive and secure your wealth and legacy.