A business loan can fund your next phase of growth — new equipment, working capital, a second branch. But before you sign, here are five things every business owner must check.
1. Know Your Actual Requirement
Borrowing more than you need means paying interest on idle funds. Map out your exact cash requirement for the next 12 months and borrow that amount, not a round figure.
2. Compare the Effective Interest Rate
The advertised rate is rarely the whole story. Processing fees, GST on fees, and insurance can add 1–2% to your effective cost. Always ask for the Annual Percentage Rate (APR).
3. Check the Prepayment Penalty
If your business does well and you want to close the loan early, some lenders charge a 2–5% prepayment penalty. Read this clause carefully before signing.
4. Understand Collateral Requirements
Unsecured loans are faster but carry higher rates. Secured loans (against property or equipment) are cheaper but take longer and risk your asset. Choose based on your risk appetite.
5. Plan for a Revenue Dip
Business is cyclical. Your EMI plan should work even if your revenue drops by 25% for a quarter. Build that buffer into your repayment plan before you apply.
The best time to take a business loan is when you don't desperately need one.
Our business loan advisors at Al-Khair can help you compare offers from multiple lenders. Learn more →