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Small businesses often need additional funds. They may need to replenish their inventory, upgrade equipment, expand their workspace or cover a temporary financial shortfall.
A small business loan is one of the most popular ways to raise funds for a business’s current plans. Financing from banks and other institutions plays a role in the success of millions of businesses. For a loan to benefit a business, however, its owner needs to consider several factors.
Obtaining the funds is only one part of the process. Business owners also need to calculate how much they need and for how long, so they can plan their budget without taking on excessive obligations.
Determine How Much You Need and What You Will Use It For
The first step is to calculate the amount you need. Suppose a new piece of equipment costs GEL 15,000. The business owner should consider more than the purchase price. The calculation should also include transport and installation costs and, in some cases, staff training or the first month’s operating expenses.
In this case, the owner needs to consider the business’s turnover and identify an amount that will allow the new equipment to be put into operation as quickly as possible. At the same time, the loan should not be so large that the business struggles to repay it from its turnover.
The next step is to check what type of financing the chosen microfinance organisation offers, what requirements borrowers must meet, what repayment periods are available and what terms apply.
Alongside the total amount, the owner should consider the business’s potential. If the loan will be used to buy inventory, approximately how long will it take to sell? If the money will be invested in equipment, how much will it increase productivity or how many additional orders could it bring?
Adapt these questions to the nature of your business. Without such calculations, it is difficult to assess whether the loan can realistically be repaid from existing and expected income.
Start by Assessing Your Cash Flow
Business income is rarely the same every week or month. In a seasonal business, turnover may be very high for three months and considerably lower over the following three. To prevent loan payments from placing too much pressure on your budget, plan them around periods of average and lower turnover. This will help reduce the risk of missed payments.
Start by listing your expected income for each week and subtracting rent, taxes, salaries and other regular expenses. The amount left will show how much is available for loan repayments. To avoid disrupting daily operations, base your calculations on periods when income is at its lowest.
Creditservice+ offers small business loans ranging from GEL 300 to GEL 100,000, with repayment terms of 1 to 48 months. If your business turnover varies from week to week or month to month, choose a repayment schedule that allows you to cover instalments even when income fluctuates.
What Should You Know About the Terms of a Microfinance Loan?
The interest rate is important, but the nominal rate alone does not give you the full picture. Before taking out a loan, make sure you understand terms such as the effective interest rate, fees, loan term, repayment schedule and overdue payments. Each can affect your obligations under the agreement.
Check the total amount you will need to repay by the end of the agreement, taking the loan term into account. This will help you compare the cost of the loan with your actual financial capacity and see how the instalments will fit into your business budget.
In some cases, extending the loan term by 6 to 12 months may make the regular payments easier to manage. In others, a shorter term may be preferable because it can reduce the total interest paid. The right balance depends on the individual business.
If your business earns at least part of its income in a foreign currency, the exchange rate is another factor to consider. Exchange rate changes can increase the cost of imported goods, raw materials or equipment in lari, even when their price in the foreign currency remains unchanged. Include a small financial reserve in your budget to help manage such risks.
Read all the terms carefully before signing the agreement. If any clause is unclear, ask a representative of the lender to explain it. Pay particular attention to the payment dates, fees and conditions relating to early repayment or late instalments.
How Can You Apply for a Small Business Loan Online?
Small businesses can often apply for a loan remotely, although the process differs from one organisation to another. Check whether your chosen lender offers an online application for a small business loan and whether a branch visit is required for any additional steps.
Creditservice+ small business loans are available to active entrepreneurs aged 21 to 65 who have turnover from an active business. The required documents may vary depending on the nature of the business, but generally include an identity document and proof of business turnover, such as a bank statement or a declaration submitted to the Revenue Service.
Before submitting an application, review the main points and make sure the loan terms suit your business. You should know how you will use the funds, keep a small reserve in your budget, choose a suitable loan term and arrange a repayment schedule that fits your business’s turnover.
