Is a Bad Credit Business Loan Worth Pursuing?
Interest RateOne of the key components of your loan is the interest rate. It’s also the main way lenders make money off you. It’s their return on their investment (ROI). Most lenders use an Annual Percentage Rate (APR). This means that your interest rate is based over a year long period. Usually interest rates are also compounded. This means that each cycle you incur interest on the principle balance. For example, if your APR is 12% and you make payments monthly, at the end of every month, you’d be charged 1% on the principle balance. 1% you ask? I thought you said it’s a 12% APR. Yes… that’s right. When you divide 12% by 12 months (monthly payments, remember), you get 1%. Small Business Loans Las Vegas
Payment ScheduleI talked a little bit about monthly payments. Even though monthly is typical, payments don’t always have to be monthly. They could daily, weekly, yearly. For example, I worked with a farmer whose revenue was seasonal. In fact, the bulk of his revenue came in one time a year. He had yearly payments that came due shortly after his big pay out.
Loan LengthOne year? Five years? Ten years? Twenty years? How long do you need the loan? If you take anything away from this section, let it be: Short-term loans are used for short-term assets and long-term loans are used for long-term assets. What I’m saying is, don’t finance a building, which is a long-term asset on a 5-year loan. Don’t buy a car on your credit card.
Penalties and FeesRead the fine print on your loans. I mentioned interest as being a lenders ROI. Interest isn’t necessarily the only way they make money on you. There may be origination fees for processing your loan.