Making the decision to apply for a business loan is not an easy decision. Many times, the request for a loan is related to the need to cover expenses, although it does not have to be the case. Randall Castillo Ortega is the founder of RACO Investment, a company specializing in business loans to entities in Costa Rica and Panama, and discusses the doubts that arise when you apply for a business loan.
If you have good real-time information on the state of the economy and your competitors, you can most likely expand your business with new financing. However, before making the decision, you should ask yourself the following questions, because if you can't, that loan will turn into a nightmare. Says Castillo, “Every financial decision contemplates comparing the costs and benefits of the resolution taken. It is one thing to venture into a project and another to find someone to finance it in sustainable conditions.”
Before deciding to apply for a loan, the business owner needs to determine how much money is needed and for how long, and use this information in talking to a lender. That conversation should uncover what the penalties might be for early repayment and what interest rates will have to be paid.
It is essential in decision making to be very clear about the objectives of the financing. In other words, the first movement is to analyze whether the financial needs of your company are linked to the priority objectives and are consistent with the business plan.
Do not confuse what you want with what your company really needs – remember that your company is part of you, so be careful when defining exactly what it needs to grow. Carrying out a reform or acquiring new machinery just because you think they are old, or if the place needs a makeover just for aesthetics, it is not the way. Find out what your clients and your company need. It's also important to define the real objective, the reason for requesting a loan.
Next, define a financial strategy: what, when and how you will use the money and, very importantly, how you will return it. This enters into the economic planning of the company. Remember, ask for the smallest amount possible and return it as quickly as possible. There could be monthly fees or commissions, and these always need to be determined before agreeing to any loan.
Penalties for non-payment (commissions, fines, legal actions) might exist for early repayment. Adds Castillo, “Develop an efficient and demanding cost control to avoid reaching this situation as much as possible. Prevention is better than cure. Once the decision to apply for a loan for your SME, startup or company is made, the detective investigation task comes.”
Don't be fooled by a big smile; the business objectives of all banks in the world are to make money. This is why it is often better to go with an independent lender who will be more amenable to working out the finer details in accordance with the business's capabilities. The key is to choose after a thorough comparison of the offers. Remember to request the conditions in writing, clarify all doubts and evaluate with your advisors so that they do not lead you to red numbers.
When the entrepreneur first started the project, the engine was a good idea and the money a starter. That same entrepreneurial spirit can be applied to taking out a loan to ensure that it's the right solution for continued expansion or operations. Concludes Castillo, “Never automatically assume that credit will get you to where you want to be – investigate first and make the smart decision.”
About Randall Castillo Ortega
Randall Castillo Ortega has been involved in the financial space virtually his entire professional career. In addition to having founded the financial lending firm RATCO, he is also an avid outdoorsman and, along with his family, is a huge community supporter. He regularly participates in community ceremonies and events organized to drive a better environment for children and families.
— WebWireID265210 —