If you’ve never shopped around for a business loan before, you may think that there is just one type of product available. This isn’t strictly true, as there are actually many different financing options suitable for businesses – including short-term loans, invoice financing and cash advance loans.

shutterstock_444500860The decision to take out a business loan should be made with great care. It’s crucial to find the right arrangement to suit your needs both now and in the future.

Ask yourself these five crucial questions…

Before you even start looking for loans, it’s important to get your requirements straight. Once you know exactly what you need, it becomes much easier to narrow down the many different choices available. Searching the market and comparing terms and rates also becomes easier.

So, sit down with your financial team and ask these crucial questions:

  1. How much money do you actually need? Asking for too much can potentially affect your chances of getting approved, and it can also prove more difficult and expensive to pay back the loan. On the other hand, if you ask for too little to accomplish your goals – you could be treading this same path again in a few months’ time.
  2. What do you need the money for and can you detail how you’ll spend the loan, down to the last penny? This is the kind of information that a bank manager will want to know, and it could make the difference between approval and rejection.
  3. How quickly do you need the money? This will affect the type of loan that you need, and it could result in higher interest rates in exchange for fast approval.
  4. How long will it take you to repay? An accurate forecast using all available financial information can help you to determine which repayment terms will suit your business best.
  5. How much, if any, collateral can you offer? This question can be phrased another way – how much risk can you accept in exchange for a loan to expand your business? If the best terms require you to put up essential assets as collateral, you could risk losing them if you can’t repay.

Searching the market

Armed with the answers to these questions, you can now start to search the market for a loan that suits you. Short-term loans tend to be the most popular choice, with terms from 3-18 months and available from a wide range of lenders both online and on the high street. You can compare prices to find the most competitive deal, as well as terms that work for your business.

You can also consider cash advance schemes, which are one of the most popular FSB loans at the moment. These loans are considered to be risk-free as you don’t have to put up any stock, assets or property as collateral, and they involve flexible repayments directly linked to your cash flow. This makes the loan more affordable and flexible, and the money can be transferred quickly.