Factors to consider before taking business loans

Businesses requires finance inorder to run smoothly.The entrepreneurs/employers have to consider several factors before taking loans.Business loan is the finance which the business borrows from financial institutions or other financial  services which issues loans.All business requires sufficient finance inorder to run smoothly.

The following are factors which the business should consider before taking business loans from financial institutions:

Before taking business loans from the financial institution,the business owners should know the purposes for taking the loan.In this case the business owners should determine whether the loan will be used to expand the business or whether the loan will be used to purchase more stocks in the business or whether the loans to be applied for will be used to pay salaries to the employees.

The business should also know the amount of loans which it is going to take or apply from the financial institutions.The amount of loans the business will take or applied from the financial institutions will depend on the amount of money which is required to finance the purpose of the loan.For example when the purpose of the loan is to expand the business and the business requires three hundred dollars $300 for expansion,then the business can request three hundred dollars loans from the bank or the business can request more than three hundred dollars to cover for contingency fund.Contingency fund is any extra money which can be used to cover for uncertainty.In the example above when the business is requiring three hundred dollars to expand the business and after getting the three hundred dollars to expand the business it happens that the three hundred dollars was not enough to expand the business as there were other expenses which occurred on the way during the expansion of the business,so this extra expenses is known as contingency  funds.So since the business required three hundred dollars to expand the business then by borrowing more than the three hundred dollars from the financial institution then the business will be able to cover for this extra expenses or the business be able able to have some extra finance to act as contingency funds.

The other factor to consider before the business can borrow loans from the financial institution is for the business to know the interest rate that will be charged on the loans which the business is going to borrow or apply for from the financial institution's.The business should also know all the hidden charges which will be charged on the amount of loan which the business is going to borrowed or applied for from the financial institution's.

The business should also know the duration the bank will give to the business to clear the loans.Usually the bank/financial institution can give duration of three months,six months,one year or more than one year for the customers to complete repayment of the loans which has been taken by the customers.So the business should know the number of days,months or years when the business will be given by the financial institutions before the business could complete to repay the loans which it has to apply for from the financial institution's.

Every financial institution's have there own way of giving grace period on the amount of loans which the customers have taken from the bank.Grace period is the number of  months the bank/financial  institution  gives to the customers before the customers starts to repay the loans which the customers has taken from the bank/financial institution's.So the business should know when to start to repay the loans which it has to borrow from the bank/financial institution's.

The business should also know whether the business is financially able to repay the loan which it has to borrow from the financial institution's.In this case the business should know how it is performing economically so that it can repay the loan with ease.

Most business have extra finance which they usually save at the banks or they usually have other investments,so the business can first consider to get finance from this saving the business has made or the business can get finance from the investments which the business has made before the business can decided on whether to whether take loans from the bank or financial institution's.In this case the business should know the total savings it has made or the business should know the total investment the business have as this will enable the business to decide on whether to use the savings or the investment it has to finance the business before deciding to apply loans from institutions.

The business can also get finance by either purchasing business stocks/equipments by either on credit or by purchasing goods on hire purchase.By purchasing goods on credit then it means that the business gets the goods from the suppliers and the business will pay the supplier at future agreed date while by purchasing goods on hire purchase then it means the business gets the goods from the suppliers after paying the initial deposits to the suppliers before the business can start to pay the remaining amounts to the suppliers according to the agreed monthly installments.In this case the money which the business was to use to purchase the goods/items on cash,can be used to finance the business and as a result the business will have ready cash to finance itself.

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