Being an entrepreneur, you may face a situation where your business may not have adequate funds to carry on its operations in the marketplace. In such a situation, you may assume that taking the business loan from a commercial bank to tide over this cash crunch is the ideal thing to do. However, you need to keep in mind that regardless of whether this kind of financial help is able to generate revenues for your organization or not, you are liable to repay this debt. If you fail to do this, the bank has a legal right to repossess the collateral asset against which you took this loan.
George Ammar – What you need to consider when taking a loan from a bank?
George Ammar is a popular Certified Public Accountant and former Chief Financial Officer of Resilience Capital Partners LLC. He explains that you need to consider the following 3 essential points when it comes to taking a business loan from a commercial bank for your business:
- Determine the amount of money you need
First, you need to determine how much money you need from your banker in the form of a loan to tide over the present cash crunch in your organization. This is important because if this amount is amount is too big, you may end up being liable to pay the interest charges and the processing fees on such a loan. This can adversely affect the bottom-line profits of your business. If you cannot determine this amount, it is prudent on your part to hire a professional accountant to help you in this matter.
- How urgently do you need such funds for your business?
Banks take a certain time period to sanction their clients’ loans depending on the amount of money you need for business. This is the reasons why you need to determine how urgently you need such funds. If you need the money within the next few days, then you should look for other viable options like invoice financing to overcome the cash crunch situation.
- Be aware of your personal credit score
Your personal credit score is one the essential factors your commercial bank will scrutinize before sanctioning a business loan for your organization. This is the reason why it is important for you to be aware of your present score before visiting this financial institution. Make it a point to get your credit report from the credit bureau evaluating your creditworthiness. Make sure you resolve the discrepancies you may find in this report with the agency before going to the bank.
George Ammar says before signing the application form, it is important for you to read the fine print of this document. You need to remember that not all business loans are the same. You need to have a good understanding of the loan’s payment structure. In some case, the interest the banks charge you on such funds may be more than the principal amount. You need to keep in mind these and the above 3 factors before opting to take such debt to tide over the cash crunch situation in your organization.