When you are ready to apply for a loan, make sure you consider these three issues:
1. Cost of Capital
Understand your true cost of capital. It is one thing to compare this interest rate to that. However, there are MANY other factors to consider in truly understanding your TRUE COST OF CAPITAL. For example: most lenders charge points or fees or both upfront. Make sure you consider these fees when understanding your cost of capital. If you take your payment and multiply it by your term you will have your total of payments. Add your total of payments to your points and fees to get a more accurate picture of your true cost of capital. Example: IOU Financial / Merchant Cash Advance MCA, amount sought: $20,000. $20,000 with a Term 6 or 12 month fixed term / 6-8 month repayment period Payment Type Fixed / Variable Average Cost on Dollar 1.18 / 1.38 Total Cost of Capital 3,576.00 / 7,600 With IOU Financial you pay back $3,576 over 12 months instead of $7,600 in 6 – 8 months. If you do want to payoff your IOU loan early you will pay less interest. If you pay back your MCA early, you will still pay the full amount.
2. Processing fees
Most lenders charge up front loan or processing fees. Make sure to ask your potential lender to define these fees up front so you won’t be surprised by hidden processing fees or balloon payments later on.
3. Say NO to Prepayment Penalties
Believe it or not, many banks will actually penalize you for paying your loan off early by charging you a prepayment penalty. Imagine your business takes off and you want to save yourself some interest and pay your loan off before its due date. Make sure that your loan agreement gives you the flexibility to pay your loan off early without any ridiculous penalties. Most small business owners make the common mistake of thinking that a bank is the safest, smartest place to obtain a loan. But when you start to educate yourself on all the lending choices out there – you’ll soon learn that a bank isn’t always the best choice when it comes to a small business loan.
Benefits of an IOU Financial small business loan:
- No application fees
- Origination fee of only 4.95% (only fee charged as long as loan is paid as agreed)
- No pre-payment penalties
- From your online access you can watch your account balance and interest charges drop daily.
- Fast…. Easy…. and headache free. Pre-approval is immediate and your loan can be funded in as little as two days.
Source: Key Business Loan Issues from Dun & Bradstreet Credibility Corp. http://smallbusiness.dnb.com/business-finance/business-loans/451-1.html