Here are some terminologies and features that you should keep in mind while scouting for small or startup business loans:
Repayment term or period. This period pertains to the number of months or years that it will take your business to completely pay off its financial obligation. You may opt to pay back the funds you wish to borrow within six to twelve months or within the next three, five or even ten years.
Late charges. These represent the fees and penalties that you must pay, should you decide to skip or default on your monthly dues. Since market trends and the value of currencies are quite unpredictable, it would be wise to negotiate for a reasonable late payment fee or surcharges with your target lender.
Collateral or security. In most cases, small and startup business owners, like you, will be required to pledge a valuable asset against the loans they wish to take out. The purpose of this requirement is to guarantee the repayment of your future dues. In case of default, your lender can simply seize the collateral you have submitted and sell it to interested parties, to recover the funds it has extended for credit.
Now, to maintain ownership over your personal or business asset, we suggest you strive to keep up with your monthly loan payments. See to it that you submit on-time and complete payments to your lender, all the time. By doing so, you can minimize your risk of losing your valuable properties to repossession.
Prepayment. This is the term used to describe the fees and charges that business owners must pay should they decide to settle their loans before the agreed-upon repayment date. You will incur such charges since the lender failed to generate as much profit as it should have if only you complied with the original terms and conditions that applied to your business loan.
Although prepayment can actually help your enterprise save a great deal of cash in terms of interest, such amount may be smaller than the prepayment fee you’ll incur. Hence, we advise you to carefully consider this feature before signing your credit agreement.
Type of interest. Apart from determining the rate of interest that will be imposed on your business loan, you should also consider the type of interest that will apply to it.
There are two basic kinds of interest, namely fixed and variable. With a fixed interest rate, you can expect to pay just a single rate of interest all throughout the term of your business loan. Meanwhile, with a variable rate, the rate of interest charged on your credit account will vary depending on the changes in the economy. This means that you may start with an extremely low interest rate, which could suddenly spike up, most especially when there are drastic changes in the market.
Grace period. The grace period actually pertains to the number of days after the agreed-upon payment date, in which you can settle your dues, without incurring fines or penalties. You should carefully consider this feature, as it will enable you to avoid pesky fees and charges, especially when business is slow.