What a great day – you’ve just closed your new business loan and are looking forward to buying that equipment and clearing those bills. At this point the deal is done, the die is cast – there’s no going back.
Remember that banker you’ve been building a relationship with? The one you told your story to? Hopefully, he or she guided you painlessly through the process. You should always ask directly about the pros and cons of this particular loan. Here are some helpful hints to get you safely through.
- Read every document before you sign it. You owe it to yourself to make sure you fully understand what you are getting into – and your banker owes it to you too. If you don’t understand it, don’t sign it.
- Did you get what you asked for? Is the term right? Is the rate what you agreed to? Confirm this yourself before you sign the agreement.
- You are entitled to ask questions. One of your most important decisions is whether to pick a fixed or variable rate. No one can or should make that decision for you. However, your banker can lay out the options. If you are considering a fixed rate loan – clarify how long the fixed rate period will last. In some instances a 20-year loan could have a rate that is only fixed for the first five years and then reverts to a variable rate. If you want to maintain the fixed rate you may need to contact the bank and negotiate a new fixed rate at the end of the first five years. The lesson – read the terms and conditions carefully.
- Don’t be rushed into anything.
Here’s another important question to ask: does the agreement allow you to pay the loan off early without penalty? If there is a penalty – how much is it and under what circumstances do you have to pay? For instance, many banks waive the penalty if you are paying the loan off from cash flow or the sale of an asset, but will not waive it if you are re-financing the loan at another bank.
The last word? By building a close relationship with your banker, you can eliminate a lot of the stress and confusion when you are making these decisions.
As a business owner, what do you think are the most critical questions to ask when obtaining a loan?