With the vast range of business loans and business cashflow products available to SME’s these days, obtaining extra funds to pay for the day to day costs of your fashion business or additional cash to finance growth is less of a headache than it was a few decades ago.
The type of finance you chose will depend on your business and what would best suit your business’ needs. The biggest challenge is not the process of filling out an application and sitting down with your bank manager or finance provider but actually arriving at a decision.
There are infinite loan and finance options available for businesses and it can be a bit daunting when trying to translate the finance jargon to make a significant decision for the benefit of your business.
When choosing your business financial solution, it’s vital to keep in mind that most lenders will have a number of terms and conditions as part of the loan. However, with some research and careful planning you can avoid a few of the traps that catch out unwary business owners.
Not so candid
If you decide to go down the path of using a broker, then you should watch out for brokers that demand up-front fees before your business loan is secured. These brokers are looking for a quick sale and extra cash through your payment of their service fees. In fact they can charge you hefty amounts without securing your business loan at all. You would shop around to find the best fabric supplier for your fashion line, finding a broker that is cluey about business finance is worth some comparative consideration also. When you’re conducting this search it’s important not to feel pressured; find a broker that is prepared to listen to you and answer ALL your questions.
When the honeymoon’s over
The allure of a sale sign outside a clothing store can be enticing to customers and can help drive more store traffic. Some finance lenders will adopt the same principle and promote a low introductory or honeymoon interest rate to help entice borrowers. Whilst the low interest rate on the big sign in the window looks attractive, it’s the small print of the terms and conditions and the cost of the loan when the interest rate reverts to the standard rate that should draw your attention. There’s almost always a catch too, so there are typically some restrictive options as part of the deal – offering business borrowers little flexibility or incurring penalty fees if their circumstances change.
Cheap at twice the price
The features of a loan are just as significant as the interest rate. It’s essential to know exactly what is included in a loan’s terms and conditions and how fees will be structured over the life of the loan. If you’re unsure, you should ask your lender to explain the finer points. For additional peace of mind, you should talk to your solicitor or accountant. There may be a fee for their advice; you could save thousands in unknown fees and interest over the course of your loan. Think of taking out a business loan as you would about making a major purchase for your fashion company that contributes to the success of your business.
Administration fees can pop up unexpectedly, often at the end of the application process, so read every loan contract thoroughly so you understand what the entire cost of the loan is before signing on the dotted line. Incidental fees for transactions, delayed or early repayments, monthly statements and account keeping fees can all add up to increase the total amount owed.
Breakin’ up is hard to do
If you’ve agreed to a fixed-term or a fixed-rate with a lender, you’ll find that early repayment or break fees are normally applied. If you do need to break the loan’s terms or repay it earlier than previously agreed, most probably you’ll unfortunately be faced with a fee.
So be sure to ask about the terms and conditions before signing up for a loan, as well as what kind of penalty you may have to pay if you do want to pay it out early. Saying this it would be worthwhile considering whether the cost of maintaining the loan to its full term actually outweighs the cost of the penalty fee before breaking the term.
Don’t despair. With so much choice finding the right loan for your business is fairly simple as long as you are willing to shop around and do some research. Just remember: take time to consider all your options, don’t be afraid to ask questions, and always read the small print.