Now that you’ve decided to pursue opening a new venture or rehabbing your existing business, you realize you require additional capital to turn this goal into a reality. Before contacting a lending source you ask yourself, “what are the biggest factors to consider when applying for a commercial loan?”
Most borrowers list:
- Loan Amount
- Borrower (Assessing themselves and the project)
However, we suggest thinking B.L.T.-Borrower, Loan Amount, and Term. The smart borrower understands the most important component in the loan process is getting approved for what you need and making sure the payments are supported by the cash flow of the business. Therefore, remember B.L.T.
B: Borrower- You are the important piece in this formula and you understand your project better than anyone. Since you will be the one paying back the loan, make sure you are comfortable with the project and the process. Read the fine print and trust your lender.
L: Loan Amount- Make sure not to over-extend or under-estimate the project needs. Once you’ve targeted the amount you require, the loan can be structured to fit the cash flow and maximize the return on your investment.
T: Term- The correct term will help structure the loan payments to fit the cash flow. Longer term will reduce the monthly payments, and with most loans, there are no prepayment penalties so any excess available cash can be put toward reducing the principal balance.
Now we finally come to rate.
Everyone thinks shaving even a quarter of a point is a huge win. However, if you cannot satisfy BLT you may find that the perceived savings actually saddled you with a loan that doesn’t fit the project.
For example, the difference between 6% and 6.25% for a loan amount of $100,000 and a 60 month term is less than $12/month.
Don’t get distracted and potentially move on a loan that doesn’t fit your project. Focus on what is really important, ensuring that you’re comfortable with the process, the fine print, the loan amount and term that fit your business’s cash flow and ultimately your business’s needs.