06 Oct What to Ask Before You Sign That Business Loan Contract
For consumers who don’t happen to have a law degree – i.e., most people – the language of contracts is typically a lot of mumbo jumbo mixed in with a sprinkling of “wherefores” and “whereases.” And all of it can be as confusing as it is boooooring. No wonder the fine print of contracts so often gets overlooked.
But it’s the overlooked fine print in a business loan contract that can cause a small business owner endless headaches later. This article is aimed at helping entrepreneurs – like you – enter into business loan contracts with eyes wide open.
(It’s part of a larger commitment here at Quote 2 Fund to lending that’s transparent and fair. A commitment reflected not only in the clear language of our business loan contracts, but also in the Small Business Borrower’s Bill of Rights we’ve signed on to uphold.)
To avoid costly mistakes, here are some things you’ll want to look for in a contract or, better yet, ask about in the early stages of your search for a good business loan:
- “Is the interest rate fixed or variable? And if it’s variable, when does it change?”
- “What are the payments schedules, grace periods, and late fees?”
- “If I pay the loan off early, will I incur a penalty? If so, what is it?”
- “How do you, as a lender, define ‘default’? And what are the penalties if a borrower defaults?”
Using a business loan calculator for even more clarity
In judging whether or not a business loan is a good choice, most borrowers initially look at the interest rate. But the interest rate alone doesn’t tell the whole story. A better way to evaluate a loan is by taking into account its APR.
APR – Annual Percentage Rate – is a better indicator of the true cost of borrowing money because it also reflects other fees and charges that can be part of a loan. Among many lenders, these can include everything from loan origination and processing fees to document presentation fees.
If a lender is transparent about the details of a loan, it’s possible to calculate the APR on your own with this information and the calculator here.
- The amount of your loan request
- The interest rate
- The loan term
- The sum of all fees associated with your loan
Beyond the APR
However, the lowest APR might not always be the best option when you take into account the loss of time spent applying for a loan and waiting for approval. With a lender who’s able to expedite the process, you can stay focused on making money, instead of jumping through hoops to borrow it. And in that case, a higher APR could actually be more cost effective.
With all there is to consider and calculate, the easiest way to get the loan that’s right for you and your business is to work with a lender you trust. As James Dalsey, the founder of Quote 2 Fund put it, “Small business borrowers have the right to see the cost and terms of any financing that they are offered in writing and in a form that is clear, complete, and easy to compare with other options.”
A good lender will be glad to answer any and all questions you, as a consumer, have every right to ask.