According to Time.com, now is the best time in years to get a small business loan. Small business loans can be used for a variety of reasons: business acquisition or expansion, business real estate, construction, equipment, furniture, working capital, and more. Whether you're shopping for your first business loan, thinking about refinancing, or add another loan, it's always wise to make good use of borrowed money. This post tells how to make the most of your business loan.
Using a Small Business Loan to Its Fullest
When applying for loan money, you must detail how each dollar will be spent. It's important to stick to that script. However, what if there is money left over but you're goals have been reached?
What's tempting for some people is to pay off the loan early. If you're thinking of doing this, ensure it makes financial sense. Most people decide to keep their loan. If the terms for the loan are good, use the money for expansion projects (as long as the bank is okay with this). Take advantage of the cheap money. Make repairs, add inventory, or expand the business offerings. Paying off loans early also increase your tax burden. Interest expense is deductible. Profits are not. Paying off loans early increases your tax liability because net profit is greater. Paying off a loan early sounds appealing but it's important to check the numbers.
A loan is a tool. You want to build as many things as possible with that tool so it pays for itself quickly.In most situations, business owners should want to hold onto that loan as long as possible. If the loan terms aren't stellar, consider refinancing.
"What if I didn't take advantage of the lowest small business loan rates? Can I refinance?"
Getting a small business loan is a massive undertaking. Sometimes you just focus on getting a loan, rather than getting the best loan possible. Often people realize their rate is high - after they've already signed. Or, the financial climate has changed and new loans being offered have low rates. Or, banks may have eased up on their requirements. That may mean the bank you originally wanted to use may be willing to accept you at this time. No matter the reason, a desire to refinance or get a new bank completely is smart. Most business owners don't find it wise to become complacent with a situation.
A loan is free money - outside of the interest you have to pay. Your goal should be to get - and keep - the loan interest rate as low as possible. Even if you didn't do your homework when you first signed, there is still some hope for you.
It is possible to refinance small business loans. You can even re-negotiate business loan terms. However, this process is not easy. Before you start down this path, ask yourself the following questions:
How do my business loan terms compare with what others are getting?
SBA (Small Business Administration) loans will often offer the lowest interest rate on the market. See if you would qualify for this type of loan. If not, you may still be able to use this low-interest rate as a bargaining chip with your current bank. If you've been a good customer, they'll want to keep your business.
How much interest is left?
How much interest is left to be paid on your debt? Refinancing becomes less important as the debt is paid down. Refinancing takes time and energy - even if there is only a small amount of interest left.
How much does it cost to refinance?
SBA loans have fees of 3% of a loan's value up to $700,000. Ask your banker to give an estimate on the costs to refinance your current loan if it's not done through the SBA. If your current bank doesn't want to play ball, consider one of the many other small business loan companies available.
Is the amount of paperwork worth the time/money?
Even if there is money to be saved, it's not always the best use of your time. Getting a new loan may result in a stack of papers the size of a small phone book. Your time may be better spent making your business more profitable. Paying someone to do this work may not be wise either. If you plan to proceed with a new loan or a refinanced loan, be sure to review all terms before finalizing the refinancing. Make sure you'll be happy for years to come.
Final Thoughts about Maximizing Business Loans
A business loan is an ongoing agreement. Once it's obtained, the work is far from over. Rather, it's just beginning. After all, you have to make good on the agreement with the bank. Make the most out of your small business loan by using the money wisely. Refinance or change lenders, if desired. Small business loans are financial awards which should be respected. Now go maximize the benefits!