People who are new to business lending often think like consumers when they look for a small business loan, or business lines of credit. That is, they shop interest rates and basically make their decision based on which bank offers the lowest interest rate.
But with a business loan or credit line, that’s not always the most important consideration.
How can that be? Don’t we always, always want the lowest interest rate we can get?
The short answer is no, especially when it’s a loan to fuel your business success.
Here are three other critical factors to consider when you’re getting a business loan or line of credit.
- – Will this loan or credit line show up on your personal credit report?
- – What is the monthly payment?
- – What is the term of the loan?
If you can get a higher-interest loan but it won’t appear on your credit report, versus a lower-rate loan but it’s going to ding your credit, in my opinion there’s no contest there. There’s great value in keeping that borrowing from affecting your credit rating. That enables you to more easily borrow more in future, should your business need additional cash.
Consider what really matters when you’re struggling to grow your business. Cash flow matters. That means the size of your monthly payment on a loan or credit line is important.
If a lender is willing to offer longer terms and therefore a lower minimum monthly payment, but the interest rate is a bit higher, that might still be the best way to go for a new business. The lower payment buys your company the breathing space it needs to ramp up revenue and make those payments.
I have yet to hear of a business going under because of “too high interest rates.” But businesses expire from lack of cash flow and too-high bills every day. Don’t be one of them — be savvy when you’re considering a business loan or credit line.
Have more questions about small business loans and business credit lines? Feel free to call or contact the experts at LenCred online.