It’s not always easy to get a business loan more so for small businesses. That’s why it pays to understand the loan process to increase your chances of approval. In this three-part series, we talk more about how businesses can raise funds and how to prepare for them.
According to the government, businesses have an ongoing funding option. Ongoing funding refers to the amount of line of credit or of an overdraft that can be used at any one time. For instance, you can set an overdraft limit of $20,000 to cover for a big/occasional expense but often you cannot or won’t use beyond $5000 of that credit limit on average. When this happens, $5,000 will be the level of ongoing funding you require. Some things to be careful about when applying for overdraft limit include:
- higher fees associated for higher overdraft amount
- clauses allowing lenders to demand whole loan payment at any time
Fixed vs Variable Interest Rate
This can affect how stable your repayments will be. Consider the loan features and overall cost before proceeding. In fixed rates, lenders shoulder the risk of changing interest rates while variable rate puts the burden on you. The choice depends on how much cash flow you have and will have. Make sure you can cover for the fluctuations if you choose variable.
Loan security comes in many forms including rural property, residential, business or commercial assets. Often, the less security you provide, the higher the interest rate will be. Decide on which is better for your business.
For other small business funding or business loan concerns, contact Gapcap today.