There are different ways of getting financing for a project one intends to undertake. One may decide to raise the finances themselves or from friends and family. It sometimes may not be possible to raise them from these sources and therefore one may need to borrow to be able to acquire them. Borrowing is mostly done by financial institutions and commercial banks. There are companies however, that specialize in lending to individuals and other companies or firms.
These companies have to be careful in their lending since this is very critical and whoever they lend to determines whether they get their money back. On the other hand, however, it is also important for the person in need of the funds to be careful in choosing who they are borrowing from. This is because this has a number of implications on this whole method of financing.
One may need to take into account a number of factors before they make a decision on which company is the best to borrow from. This article aims at providing you with some of those actors that you may need to take into account in order to be able to make a good and more informed decision at the end.
One very crucial factor to consider in choosing a lending company is the rates they charge on their loans as interest. Interest rates are very crucial when it comes to lending since they determine the amount of money one pays back after the loan period expires. The higher the interest rate charged on a loan, the more one is required to pay at the end of the period or periodically in form of installment in the case of an annuity. The higher the rate also the more expensive the loan is and therefore the more the costs involved. It is wise and advisable to opt for a lending company that charges the lowest interest rates possible in the market. This will ensure that the loan is cheaper and therefore this means of financing becomes cheaper for the borrower too.
Another very crucial factor to consider in choosing a lending company for your financial needs are the restrictive covenants that they are likely to impose on you. These are agreements made between the borrower and the lender on how money ought to be used. There are some firms one may borrow from and end up not being able to use the money properly because of the restrictions that the lender has placed on them. This is very critical and adverse on the part of the buyer. It is therefore crucial to have in mind the restrictions the lender places on how the finances should be used.
Another crucial factor to consider is the collateral that the company demands for. This is the security that one gives. The guarantee that they will pay back the amount borrowed. It is mostly in form of a fixed asset. One should therefore be careful the type of security they give for the loan as it to a great extent affects the borrower at the end.