If you want to start a new business, chances are that you’ll need to get a business loan. Even if you think you have a decent understanding of how loans work and what will be expected of you, it doesn’t hurt to have a review. In fact, since making mistakes when it comes to business loans can easily cost you your life savings and your ability to generate income, it’s better that you do.
The Basics of Business Loans
We’ve summarized a few of the more important points for you so you can get a crash course in the “need to know” of business loans.
- Lenders – There are different types of lenders; banks, savings, individual backers, and credit unions to name a few. Different lenders will be able to offer you different pros and cons. Deciding which works best for your business plan is up to you.
- Promissory Note – No matter which lender you choose, you will likely be required to sign a promissory note, or an agreement to pay back what you owe. Even if you are borrowing money from a relative, it is a good idea to prepare a written agreement to avoid any trouble down the road.
- Collateral – In many cases, your lender may require you to put up some kind of collateral, such as a home or car, in order to get a loan. You have to be careful about these loans.
- Interest – In addition to the principle amount of the loan, you will have to pay back interest on the loan. This small annual percentage may not seem like much, but a lender charging 10 percent interest can cut deep into your profits.
- Liability – If your business is organized as a general partnership or a sole proprietorship, you could be vulnerable to creditor lawsuits. Talk to a business attorney to make sure your business is organized in a way to protect yourself from personal liability.
- Guarantors/Cosigners – Some creditors may ask for a cosigner. If someone cosigns the loan, then they too could be on the hook if times get tough. Make sure you choose an appropriate cosigner. In some cases, you may be able to persuade lenders to forgo the guarantor requirement.
When it comes time to start shopping for business loans, make sure your business plan is well in order and you’ve planned for every scenario. An experienced business attorney can help you find the best deals and organize your business in a way to protect yourself from future problems.
For a free consultation, call or fill an online form to find out how a Manalapan business lawyer can help you achieve success.