Small Business Loans
Today, we will discuss whether to take out a small business loan in Michigan at the stage of business opening or development. What are the risks of lending to entrepreneurs? What are the pros and cons?
Many potential entrepreneurs believe that small business loans Michigan is the solution to their problem. First of all, this is due to a lack of business experience. It seems to them that the main nuance lies only in the lack of funds.
Yes, on the one hand, your business will develop at an accelerated pace, but you will have to give the earned money back, and even more than one year. Of course, the risks can be minimized to the maximum. How? We will consider it further.
Reducing borrower risks
First of all, do not borrow a large amount of money at once. If your business does not develop according to the most ideal scenario, you will avoid problems with debt obligations.
The next important point. Do not forget that there are market features that do not depend on you, and you cannot influence them. For example, you opened a store, it brings a steady profit. But at some point, a large shopping center opens and renting a retail space costs a lot of money. The situation turns out to be difficult: either you rent space for a store in it, or you simply cannot stand the competition.
And in order to open a store in a shopping center, you need to get a loan again. It turns out that getting out of debt is extremely difficult. Keep in mind that the situation can develop in this way.
What else do you need to be prepared for?
- irregular working hours;
- serious stressful situations;
- the fact that it will not be possible to get out of business until you repay the loan, and so on.
Types of small business loans Michigan
Several types of loans are suitable for developing entrepreneurship from scratch.
- A personal loan is issued for starting a business from scratch, for increasing working capital, purchasing new equipment;
- Overdraft is available to credit cardholders. It allows you to withdraw from the current account the amount of funds in excess of the balance. The interest rate is determined individually and depends on the degree of confidence in the bank, the duration of cooperation and the company’s turnover;
- A bank guarantee is a surety for the fulfillment of obligations under the tender;
- A credit line allows you to receive funds in installments to cover current expenses;
- Specific loans are designed to meet specific needs. These include factoring and leasing;
- Mortgages are issued for the purchase of a commercial real estate.
Pros and cons of business loans Michigan
- Easy to get. Large banking organizations have long-established a business loan procedure. In order to receive funds, you will only need to collect the necessary documents and wait for the bank to make a decision. This usually takes up to three days. More in-depth inspections of entrepreneurs are not always carried out;
- It is convenient to apply for a loan. It is no longer necessary to visit the bank’s office in person at the present time; it is enough to fill out an application on the official website of the credit institution and wait for preliminary approval;
- Long term crediting. It depends on the purpose for which you are applying for a loan. The term may be increased by a decision made by the banking organization;
- Reduced APR. If you have a property that can act as collateral, then the APR will be reduced. This is significantly lower than APR for regular personal loans.
- Property for collateral. If you simply do not have it or the value of the property does not reach the loan amount, it is problematic to use lending, especially if you are just starting your own business. A car, real estate or equipment is considered suitable for collateral;
- Loan rate. If your business is developing at a high rate, then overpayment for using a loan is not a tragedy. But when the business is practically unprofitable or requires serious investments, paying off the loan can become an unbearable burden and lead to bankruptcy;
- Serious requirements for the borrower. Excellent credit history, high income are the standard requirements. Therefore, if you have outstanding loans or overdue debts, you should not count on the approval of a loan application;
- A business that has been started recently. A large number of banks offer lending services to start-up entrepreneurs. In fact, this is most often just a publicity stunt. If you started doing business less than six months ago, you will not be given a Michigan small business loan. Most likely, they will offer regular personal lending;
- Problematic payment schedule. The difficulty lies in the fact that the date of your receipt of profit is difficult to compare with the date of the next payment on the loan. If you have another source of income, there will be no problem, and if it does not exist, it will not be easy to pay the loan.
After reviewing all the positive and negative aspects of lending, we note that if you do not have confidence in making a profit from the business, driving yourself into debt to the bank is an unjustified idea. Is it worth the risk if you can look for alternative solutions? If you have no problems with the business, lending will only help expand it.
Many businessmen note that a small business loan literally saved their business and allowed to bring it to a new level. Business is a huge responsibility. If you are just starting your business, think twice if you need it, and then make a competent and informed decision.