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The true costs of start-up loans

Starting a business is not an easy process but when you are trying to acquire financing for your business, it can be a big challenge. Lenders are less than happy to offer loans right now and you can find that it can take a lot out of you to look for a loan and a big hit to your credit rating at the same time. Borrowing from other sources besides lenders may be your best option as you will be able to get better repayment terms.

Business loans will vary in cost based on the interest lenders are willing to offer you. This can vary with each lender since they all have different loan restrictions and guidelines. One lender will quote you 12% while another is 20%. Shopping around for the best rate is the only way in which you can get a loan that you can actually afford.

Small businesses that are just starting have a hard time getting financing because of their personal credit. You have to look for a way to strengthen your personal credit to show lenders that you are worthy of a loan and that you can repay the loan in a timely manner. Since the loan may initially go against your personal credit, you have to recognize how it will impact your credit.

Are you willing to do a second mortgage on your home in order to get the loan? You have to consider all of your options. Losing your home is never a thing you want to consider but it could be the thing you need to look at if nothing else is going to provide you with the money you need.

To assess risk lenders use your credit along with your financial control to see where you stand. It's the only way that they can get an idea as to how you deal with money. If they see that you use up all of your credit in a hurry and you do not repay it in a timely manner, it will lead to lower loan limits and higher interest rates on the loan. With some lenders, it may even cause you to get rejected for the loan.

Your best friend in this situation is the Small Business Administration. They have a lot of tools and advice that will be able to help you find financing for your business. They will even be able to offer you financing if you meet some of their loan obligations and restrictions.

As you are working with multiple lenders to find the best loan out there, here are some of the things you need to consider:

  1. Interest rate. How much will you pay in interest over the life of the loan? If you pay it off early will you have a penalty for doing so? Some of the loans are worthwhile with a higher interest rate if you can pay it off soon. For lower interest rates, talk to the lender about a secured loan. A secured loan means less risk to the lender, but more risk to you since you have to front your home or something of value, which could be reposed by the bank if you default.

  2. Loan terms. How long is the loan going to be? Can you add to the loan in the future? What is the penalty for paying off the loan early? Are there annual fees on the loans? Look into all the little details about the loan terms in order to get the best deal for your company.

  3. Consider private loans. Banks and big lenders do not always have the best deals out there. You should look into private loans because some of them deal with bad credit business owners and they can help you when you are deemed "hard-to-finance".

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