This article is sponsored content brought to you by Credabl.
When it comes to considering your options for a loan, we’re conditioned to ask “What’s the interest rate?” Sure, interest rates are important, but there are actually 4 key things you need to know in order to make a good loan decision.
1. Costs = Rates & Fees
Rates are rates. But, fees come in many guises and can skew your effective rate. From monthly and annual fees to account keeping fees, line fees etc., fees can be one of the most annoying parts of your loan because they are often hidden. Do remember however, that fees are in place to support a particular service being performed by the lender on your behalf. Always ask for a fee schedule up front to avoid any surprises later on.
2. Cashflow = Paydown Terms
This can hinder or bolster your cashflow. Not all loans and lenders are created equal and at different stages of your career, the availability of cash can be vastly different. It’s okay to have a lender that works for now, and you’ll likely have another lender more suitable to your needs in ten years’ time. Ask for loan terms, any residual or balloons due at term end (particularly on asset finance) and of course the monthly repayments.
3. Security = what else do you give up?
This is often a sticking point when comparing multiple lenders. Some will fund 100% of commercial property loans without any additional collateral. Others will only entertain such a high loan-to-value ratio if they have the practice, the tenant, as security too. Remember this shifts the dial significantly when reducing risk to the lender so the benefit should be a better interest rate right? But again, not all lenders are created equal on this front either. Same goes for your residence, is your home or investment property on the line too, or instead? Or does your spouse need to guarantee, are they on the hook too? Most of our clients prefer to keep business and personal borrowings separate so it’s imperative to know all of this when making an informed decision for a financial partner.
4. Financial Covenants
These are loan conditions, and on business debts this is particularly important as it often revolves around financial reporting. Do you need to have your financials prepped each and every year for your lender on their expected timeframe to review, assess and confirm you’re still a “satisfactory” risk? This has been more and more common with many lenders adopting this policy over recent years. Having worked with medical professionals for over two decades, at Credabl we recognise that if we had to micro manage a client and check in every year to make sure the practice is performing, we really shouldn’t be lending the money out in the first place!
The best ways to avoid unexpected costs associated with your loan, is firstly to stay on top of your loans and secondly, but perhaps most importantly, be selective with your lender. Dig a little deeper than the interest rate alone to uncover exactly what the cost of the loan will be to you and the ultimately value the debt is going to create for you and your practice.
Credabl congratulates the Australian Veterinary Association on their 100 years of support to the Industry.