Business creation, lack of cash, acquisition of equipment … many cases can cause a need for liquidity. Business credit is one of the most common solutions. The competition is tough, so credit institutions are offering more and more attractive offers. But, before signing a contract, and to make the most of such an operation, it is necessary to take into account.
The needs of the company
The financing offers depend mainly on the project to be financed. Thus, to be able to compare the offers, the professional must first know his needs.
Is it a creative project? A short-term investment? A long-term investment? What is the loan amount? Is it 100% financing, or does the company have personal contributions? From the answers to these questions, the professional will be able to find the appropriate formula:
- Depreciable loan (short-term or long-term)
- Non-depreciable loan (cash facility, factoring)
The interest rate
A variation in interest rates between two loan offers obviously leads to a change in the cost of credit. Although this criterion is important, it is not everything . Indeed, the rate is not comparable for example if the duration of the pro loan is different … The longer the term is, the higher the rate. In addition, an interest rate may be low and other fees high, which will ultimately result in a higher cost of credit.
Moreover according to the typology of the entrepreneur, it may be interesting to accept a higher interest rate but with a low guarantee.
The duration of the loan
During a business loan contraction, it is important to determine the term of the loan. In fact, for a cash flow requirement or to finance the operating cycle, for example, the types of short-term loans are adapted. That is to say 2 years maximum.
Among other things, for large investments such as equipment acquisition, the types of long-term loans are suitable. In principle, they can go up to 15 years. Depending on the duration of the loan will be determined the amount to be repaid monthly, including interest. And, the longer the duration, the more the monthly payments will be reduced.
A component that could also tip the scales, these are the guarantees that the professional should bring to the banker in case of non-repayment of the loan. But be careful, it is not because the guarantees are solid that the bank will decide to grant a loan or not. Above all, there is the ability to pay back the deadlines.
Thus, the most requested guarantees by the banks are mainly the mortgage or the pledge, to be taken on the goods of the company (local, warehouse …), and the surety organizations. They work the same way as for loans to individuals.
The death insurance rate and the disability insurance rate are the main points to know by the professional. For the disability, the intervention of the insurance depends in particular on the degree of incapacity of the person. So the best way to choose the quotes is to take into account the beneficiary’s income.
Among other things, it is better to choose low insurance rates if the professional considers that it is well covered. While the rates are attractive, insurance benefits are limited. So beware of exclusions!
The costs incurred
In terms of professional loan, we must distinguish:
- The costs invoiced at the opening of the credit: the expenses of file, the expenses of management, etc.
- And, the fees that come into the monthly repayments: insurance, guarantee, interest, etc.
From this information, the professional can obtain the overall cost of the loan. Keep in mind that the cheapest offer of credit is not the one where the monthly payments are low or the one where the interest rate is low.