,

How to Choose the Perfect Small Loan for Your Needs

Are you looking for business funding in South Africa?

There are hundreds of options available to you. With more and more South African businesses borrowing money, lenders are rising to meet the demand. The variety of financial help out there can make it difficult to know what’s right for you.

We can help you make your decision.

In this post, we’ll tell you which questions to ask before you approach a small loan provider.

Questions to Ask Before Choosing a Small Loan

Use these tips to make the right financial decision for your business.

How Much Money Do You Need to Borrow?

This should be the first question you ask yourself before you select a lender.

Have an idea of how much cash you need to borrow, and make it as realistic as possible. Lenders will assess this request against the potential of your business in order to see if you’re a viable prospect. Therefore, it’s important that you understand exactly what you need.

Remember to be somewhat flexible with that figure, as lenders may not be willing to offer you exactly what you’re looking for. It’s likely that you’ll need to come to a compromise, so before you approach a lender, think about how far above or below this figure you can afford to go.

Don’t take out a loan for more than you need. A bigger loan comes with bigger repayments, and if you’re not able to generate enough revenue to keep up with those repayments, you could end up in trouble.

A loan that’s not big enough will be of little help, too.

Knowing exactly what you need will allow you to assess each offer carefully and find a small loan of just the right amount.

What Do You Need the Money For?

Why do you need a small loan?

The answer to this question will help you to narrow down your options. The type of loan that’s best for you will depend on what purpose it serves.

If you want a loan to help you make a one-off purchase, a term loan could help. However, a simpler option could be to finance those purchases through your supplier.

To cover yourself when customers fail to make payments on time, you could finance your invoices, too.

If it’s recurring purchases or expenses that you need to cover, a business credit card could be all that you need.

How Soon Do You Need the Money?

If you need access to cash as quickly as possible, your options will be more limited.

The faster you need the cash, the more it’s likely to cost you. Rates will be higher in order to cover the risk on the lender’s end.

Some businesses may require a small loan immediately in order to make up for an unexpected drop in income, to cover an emergency, or to make a sudden expense to take advantage of a short-term deal. However, this will come at a price.

Businesses which can afford to wait for financial assistance will be able to take advantage of reduced rates. However, this is a luxury which many borrowers don’t have.

If you do, be patient. In the long run, you’ll be able to get a more affordable loan, keeping your costs as low as possible.

How Much Will it Cost You?

There are a number of factors you need to consider in order to assess how much a small loan will cost.

The first is the interest rate. This is simply how much you’ll pay each year or month in order to borrow the money.

Then, there’s annual percentage rate (APR). This figure includes extra fees, such as administration fees, broker fees, and processing charges. This gives you a broader idea of what you’ll have to pay.

Find out if there are any additional costs or penalties that may apply to you. That way, you can make a well-informed decision as to whether you can afford to take the loan.

How Long Will You Have to Repay the Loan?

Think about how much time you’ll need in order to viably repay your small loan.

Some loans are short-term, requiring payments to be made within months or even weeks. If you know that your projected income will allow for that, this is a smart option for you.

Repaying your loan as soon as you can means paying fewer fees and relieving yourself of the burden as quickly as possible.

On the other hand, long-term loans can be good for business, too.

Taking out a loan over several years can be a scary prospect. It’s a large expense and responsibility to take on. However, they have their benefits. You’ll have more time to make your repayments, so in a sense, there is less pressure.

What’s the Financial Status and History of Your Business?

Before any lender agrees to give you a loan, they’ll want to see an overview of your business.

You’ll need to be able to demonstrate your financial situation, how a potential loan will fit into it, and how it will allow you to repay it within the given timeframe.

If your business has a proven track record of success, you’ll be able to secure a bigger loan with a longer term. If not, you may need to settle for a short-term small loan with higher rates.

Is Collateral Required?

If you can offer some kind of collateral, you will have a better chance of securing a loan. This provides the lender with a safety net in the event that you fail to make your repayments.

Assets such as property, vehicles, equipment, and shares are all typical examples.

However, this isn’t always required. Many lenders offer unsecured loans in certain circumstances. If you don’t have any collateral to offer, ask what’s available to you.

Consider Online Loans

Getting a loan doesn’t have to mean making a trip to the bank. Now, you can do it online without even leaving the office.

If you’re dubious of borrowing money online, you needn’t be. In fact, this can often be a much better option. There’s more variety available, with better rates than you would see at the bank.

Best of all, you can even get instant approval.

To find out more, read our post on the benefits of online loans.