Tag Archives: bank loan

Non-traditional financial institutions can rip you with high interest

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When you are in a business you are always in need of capital. Sometimes to buy infrastructure for your business or you need money to fulfill your merger and expansion plans. It is also evident that you will not have the amount required at your disposal and therefore you have to hunt for a lender who can give you the money at an economical rate of return. Now the crux of the matter is to get a lender who can give you the loan amount at an affordable rate. There are many lenders who are also hunting for clients and are ready to provide loans but they have certain conditions which may not be acceptable to you. Either they will charge you with higher closing cost or they will give the loan at a higher interest rate. More or less, they are ready to give you loan which will be not as per your convenience.

For a person who owns a construction business, he is always in need of capital and his volume of requirement is always high. This means that a construction business owner is potentially a more feasible and appropriate client for the lender. In such a situation, the business owner should keep in mind his interest first. Just because he needs money, he should not go for someone who is providing loan at an unfavorable term and condition. There are few things which the borrower needs to analyze before he finalizes to go for the loan.

Credit rating must be good:-

A construction business owner borrows money to meet his business requirements and the frequency of borrowing money is quite often. In midst of borrowing money, he should also remember that he can’t afford to default any payment because if he defaults then that will have its ramifications on his credit rating which take a hit. No good lenders provide loan to people with poor credit rating and they eventually land up to non-traditional financial institutions who care less about poor credit rating but they offer loans with higher interest rates. This will really hurt you in the long run. You will pay more of interest and less of principal resulting in the non-depletion of loan amount. So a good/high credit rating will always benefit you in terms of availing loan at a lower interest rate.

Closing costs are extremely high:-

Whenever you go for a loan, there are few costs that you have to pay to close the loan. There are charges paid to the guy who will underwrite the loan, then charges to the attorney and also fees that will be charged by the non-traditional lenders to arrange for everything to close the loan. These fees can be exorbitant and might also pinch you. The traditional lender also charges closing costs but that is comparatively lesser than the non-traditional ones.

Construction houses should be extremely careful when they are dealing with lenders. They need to do a thorough study about the different costs that they need to pay to the lender and only if they are convinced with the terms and conditions that they should proceed any further.

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Do your research carefully before approaching a bank for loan

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For starting any form of business, you need capital and if you do not have capital at home or in hand, it means that you need to borrow. Now the question is from whom to borrow money. There are large numbers of financial institutions who are ready to give loans to budding entrepreneurs but each of them have some or the other condition and to meet those conditions is the toughest part. Some may not have conditions prior of taking a loan but once you have taken it, you find yourself in a muddle. Therefore before you approach a bank, you should do a proper study of all their conditions and then talk to them. If you have doubts, you can clear it out while you meet them but do not keep your doubts for the next moment as that can be dangerous.

When it comes to procuring heavy equipment, you are dealing with a lot of money and if you think that buying second hand heavy equipment will cost you less than a brand new one, you are right in a way but that does not mean that it will be so inexpensive that you may not need a loan to go ahead with the deal. As long as you have allocated enough resources to procure a machine you may skip the idea of going for a loan or else many big construction companies take loan to buy heavy equipment. They feel that it is worth to go for loan because by doing that they will not exhaust all their resources and can use it well when it is most required. They need money to take care of operating as well as non-operating expenses and they never want to go short of money when it comes to meeting those expenses.

Conditions of banks prior to loan approval:-

The first thing that you need to check before you approach a bank is their terms and conditions prior to the approval of the loan. They may have certain conditions like they can approve the loan only if your credit rating is above certain ranking or points or if your annual turnover is above a certain amount. These conditions are in place so that they are assured that you will be able to pay your debts in a timely manner. Some financial institutions may even ask for your business plans and how many construction projects you have in hand. They try to seek this info to know you have work in hand and can be trusted as far as repayment of debts is concerned.

Conditions of bank post loan approval:-

Some banks have conditions post loan approval and you need to be cautious about such banks. They may not mention everything crystal clear verbally and therefore you got to read the disclosure carefully. You may find few things that you are not comfortable with. You can raise those things with the bank and seek clarification. If you find them to be satisfactory, you may proceed or else you can always pick the next option.

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