Understanding The Small Business Loan Market
Amy Kassar of MultiFunding shares some tips to would-be loan borrowers in The New York Times. There are various types of loans and each has particular criteria unique to its own. These propositions dictate how much you can borrow and how you will pay the loan. Kassar advices entrepreneurs to check the loan market to find what best will serve their needs. He says, ” The first loan you are offered will have certain pricing and conditions that are associated with the risk the lender is taking. Once the bank has made this calculation, it rarely changes.” It is also important to remember that loan terms can change in six months to a year from now. Review your loans annually as these will not last forever, he adds.
There are many types of loans, and many criteria that go into evaluating how much you can borrow and what you can expect to pay. There are thousands of lenders to pick from, and each one may have a slightly different proposition to suggest.
When you’re in the market for a loan, it’s smart to do some homework and figure out where you fit.
First, despite the general sense that the loan market has been all over the place, it’s actually pretty competitive. Lenders fight with one another to get different types of loans. But once you’ve figured out where your company fits into the ecosystem, you really can’t fight gravity. If you are eligible for a certain type of loan, it’s unlikely that you are going to be able to twist a lender’s arm into offering you a more favorable type of loan. The first loan you are offered will have certain pricing and conditions that are associated with the risk the lender is taking. Once the bank has made this calculation, it rarely changes.
That said, it’s important to remember that the type of loan your company is eligible for today could well change six months or a year from now. Companies change and evolve, and so do loan markets. It’s important to review your loans on an annual basis. Some small-business owners get stuck because they think the loan they pick will last forever. This is not the case.
Once you’ve nailed down your loan type and pricing, you should step back and ask yourself questions like, “Will this loan allow me to focus on growing my business and making it more profitable?” and “Will I stop lying awake at night worrying about cash flow?” If so, it’s probably worth taking the loan.
It’s not enough to understand your own business — you also have to understand credit markets and where you fit into them. And most of all, you have to understand that they keep changing. …
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