You can get the most out of your online creditor by having an outstanding credit history. You can build up your business credit so that you are more appealing to investors or potential buyers. Keep an eye out for hidden fees tagged on to the loan. Finally, let lenders compete for your service.
Credit in Good Standing
Before applying for a loan, your credit should be in good standing. You will pay less in interest saving you money further down the road. Additionally, lenders want to make sure that you are capable of repaying the loan. If you have any credit card debt, you should pay them off before applying for loans. Moreover, your business should be registered and have a federal ID number. Above all, you should have a business checking account.
Building Your Business Credit
Small business owners should strengthen their creditworthiness. Having a business credit will set you apart from other small businesses. It will show that you can get financing, and lenders will take you more seriously. As a business, your credit capacity is far greater than on a personal level. You will get a substantial line of credit.
A business credit can also increase the value of your company. Your business would become more enticing to potential buyers. If you sell your business, the credit is also transferable to the new owners. If you are looking for investors, having a business credit would influence the decision of the investor.
Additionally, you will no longer have to rely on your personal credit as a reference. Business has its credit rating. If your firm is borrowing money, lenders will look into the credit history of your organization and not your personal finances.
Look Out for Hidden Fees
When reviewing the loan application, look out for hidden fees. You can also ask the lender up front. Here are some common hidden costs:
Verification Search
Another term for this is Due Diligence Cost. This is when the bank obtains copies of your credit report. They will have you sign a package deal where they would get to conduct an audit of your business assets to figure out your financial position. Part of this cost includes time spent on the process, legal fees, and disbursements.
Administrative Cost
This is a price that the lender charges for monitoring the loan. You will still get charged a monthly fee even if you do not have any outstanding payments. As long as the line of credit exists, you will get charged. Some lenders also charge an annual fee and also a fee to renew the loan.
Pre-payment Penalties or Termination Fees
Examine the fine print of the loan application to see if you have to pay any penalties for paying off the loan early. Some lenders set up your loan package so that you have to keep the loan longer than you would like. You can also inquire to see if they have any termination fees tagged to the loan.
Minimum Monthly or Annual Balance
Some lenders will probably charge you a fee if you do not have the required monthly or annual loan balance. When you apply for the loan, there is an advertised rate; most likely small amount. The lender will tell you that for you to get the lower rate, you would have to maintain a monthly or yearly minimum balance.
Transaction Fees
Each time you request a loan advance, the lender either wire you the money or deposit directly into your account, or they will send you a check. Either way, they will charge you a fee for the service. It adds up depending on how often you get a loan advance.
Let Lenders Compete
You can shop around for the best rate by letting lenders compete. You would fill out an online application with an auction site. Lenders will bid for your service by offering you low rates compared to others.
In conclusion, you can get the most out of your online creditor by having a good credit history. You should also build up your business credit to look more attractive to investors or potential buyers. Review your loan application to see if there are any hidden fees. To get the best rates, let lenders compete for your services.