Thankfully, securing a loan is relatively easy for most SMEs. You can be sure that there's a loan to suit pretty much any requirement, and as long as you're prepared, finance can be the key to growing your business. Just remember: take time to plan, don't be afraid to ask questions, and always read the small print.
It's much easier to secure finance today than it was twenty years ago, which I believe has been a big contributing factor to growth in the today's thriving SME sector.
The greatest challenge is not so much the process of securing finance but arriving at a choice of the right product with the best features for your business' needs. With such a vast range of options in the market place for SMEs, it can be overwhelming trying to decipher how to get the best value from all the products available.
When selecting the best financial product for your business, it's important to remember that most loans have a number of terms and conditions that can impact on the overall finance package. But with a little research and planning you can sidestep a few of the common traps that snare unwary SMEs.
Upfront Fees: Be cautious of brokers that demand fees up-front before your loan is secured. These brokers are typically looking for a quick sale and extra cash through their service fees. They can actually charge you large amounts without guaranteeing you a loan at all and in the end they may not secure the finance facility for you.
When you're shopping around, it's important not to feel pressured. Find a broker that is prepared to listen to you and answer your questions. There are plenty out there that will shop around and find the best financial product for you and without asking for an upfront payment.
Honeymoon and introductory rates: Some lenders will promote a low introductory or honeymoon interest rate to help entice borrowers. Whilst some honeymoon rates can be an attractive one percent or more below standard rates, they are typically restrictive with their options - offering borrowers little flexibility if their circumstances change. Be wary, as lenders typically bump the rate up substantially once the honeymoon period has ended.
Low rates: The features of a loan are just as important as the interest rate. Understandably, borrowers are frequently blinded by the promise of low fixed-rates and then they forget to investigate the finer points of the loan agreement. It's important to know exactly what is included in a loan's terms and conditions and how fees will be structured over the whole life of the loan. If you're unsure, you should ask your lender to explain the finer points. For additional peace of mind, why not talk to your solicitor or accountant? It might cost a few hundred dollars for their advice, you could save thousands in unknown fees and interest over the course of your loan.
Break or early repayment fees: If you've agreed a fixed-term or a fixed-rate with a lender, early repayment or break fees are typically applied. If you do need to break the loan's terms or repay it earlier than agreed, the chances are you'll unfortunately be hit with a fee. So be sure to ask about the terms and conditions before signing up for a loan, as well as what kind of penalty you may have to pay.
Administration fees: Administration fees can often catch borrowers by surprise so read every loan contract thoroughly so you understand what the entire cost of the loan is before signing. Incidental fees for transactions, delayed or early repayments, monthly statements and account keeping fees can all add up to increase the total amount owed.
Most lenders are not deliberately out to confuse you, but loan applications, as well as terms and conditions, can be a struggle to digest. To be sure that you're matching your business' needs with the right finance, start by determining the purpose of the loan in order to help determine what features you may need. It's also important to think about how long you need a loan to help assess, for example, whether a fixed-rate will help, or hinder.