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Why The Average Loan Interest Rate Doesn’t Matter To The Smart Merchant

Let’s start off with this: The average rate for a small business loan is 3.93%-4.95% (as of February 2017). It doesn’t seem too bad, right? Better than your car loan or mortgage? Well, the big issue is that you must pay this loan back. Seems like a clear-cut thing, right? Well, what happens if your business fails? How will you pay it back? What happens to your collateral? Yeah, I’ve got you thinking.

There are plenty of reasons to look at a business loan as an option – and plenty to not. Below are the five worst reasons to get a business loan.

  1. To launch a new business idea before you have thoroughly researched it. Fads come and go; the goal is the find one that sticks. Before you decide to buy into the latest fad concept, spend some time doing market research and deciding whether or not the concept is a good match with your experience and interests. Many people think that owning a restaurant is glamorous but find out later that it is very hard work.
  2. Your credit cards and lines of credit are maxed out. If you have exhausted all other available credit, maybe taking on more debt is a bad idea. When lenders see that you are overextended, you will likely be required to secure the loan with assets. If you are having difficulty paying your existing financial obligations, you are entering risky territory by gambling with your facilities, inventory, equipment, or even worse, your own house.
  3. To make an impulse buy you can’t afford. Perhaps there is a new technology or machinery you think would benefit your business, or maybe you want to remodel or upgrade your facilities. While all of these things may prove advantageous to your business, you won’t be able to reap the rewards if you have leveraged all of your assets and the extra profits you make go toward repaying the loan. If the idea doesn’t bring in extra revenue, you are still responsible for paying back the loan. If you used assets to secure the loan, you may end up without a business at all.
  4. You saw an advertisement or received an email about unbeatable interest rates. As the old adage goes, if it sounds too good to be true, it probably is. And on the outside chance that it is true, just because you can get a great average loan interest rate doesn’t mean you should.
  5. You want to consolidate your debts but haven’t learned how to budget. Maybe your company is going through a tough time, or maybe you have mismanaged your company’s finances and are now looking to consolidate all of your debts. Debt consolidation may ease the pressure temporarily, but you need to address the underlying problem if you want your business to succeed.

So, what do you do when you need funding? You look to other sources. Look at local, state, and government grants. Also, look at a merchant cash advance, from a reputable merchant account provider like First American Merchant. This allows you to pay back what you have borrowed when your business makes money – and not when it loses money.