If you are an entrepreneur, it is important to get the money to “catch up” your business more. To achieve success, you need money rather than your funds and determination, your resources would result in several years of “runway”. Entrepreneurs should know how any loan can help them to improve the operation of their business.
Here are 10 key things to consider before you make your next move:
- The importance of credit scores. Lenders want to see a good credit score because it indicates you’re responsible with money and are less likely to default on the loan. The higher your score, the better rates and terms you can get. If you have bad credit, work on raising your score before applying for a business loan.
- What type of loan is best for your company? If you need capital to purchase equipment or expand operations, a commercial bank loan might be the right choice. But if keeping day-to-day cash flow healthy is your priority, a merchant cash advance might be ideal. Each type of loan has its advantages and you have to decide which option fits your needs best.
- How much do you need? It’s important to figure out exactly how much capital you need before applying for a business loan so that you don’t over-borrow and pay more interest than necessary. We recommend writing out a plan for how you intend to spend the funds before applying so that your lender knows where their money is going and has confidence in your ability to repay the loan.
- How will you pay the loan back? Lenders want to see that you have a solid plan for making payments on time each month and ideally, for the entire life of the loan. As a business owner, it’s your job to make sure the payments are made, so speak with your lender about repayment terms that best fit your company.
- Does your credit history impact the amount of interest rate you pay? If you’ve been in business for at least 2 years and have shown consistent revenue growth over time, lenders may be willing to overlook any blemishes in your credit history. But if your company only has a short credit history or is experiencing a downturn in revenue, you may pay more interest because of your credit score.
- What role do personal guarantees play? Most lenders like to see that business owners are willing to personally guarantee loans because it shows they’re confident they can repay the loan. If you aren’t comfortable with this, speak with your lender about alternative options such as putting up collateral or co-signing on the loan.
- Will the lender require collateral? Some lenders will want you to put up collateral for your business loan so that if you default on payments, there is something of value for them to seize. Lending against your assets can be a riskier option because you don’t own the items. However, taking this approach may be worth it if the loan will help build up your credit score or you have good personal guarantees to offset any risk.
- How much prep work do you need to do? A good business loan pre-approval can save you time and money by managing all of the paperwork required to get the financing. And if there are certain aspects of your business that need improving from a tax standpoint or if there are other aspects that aren’t caught by any automated system, those are activities that would take time away from running your business and could cost you in terms of revenue.
- Will the lender perform a hard pull on your credit? Before applying for a business loan, find out if the lender will perform a hard pull on your credit. This could lower your credit score by a few points and have an impact on your ability to get more financing in the future.
- What are different lending options? While not all business loans are made equal, there are some advantages to opting for one type of loan over another. Lenders may offer financing for up to 75% of your company’s assets by putting the loan in your name. If you have all equity in your company, this is a good option because you have complete control over the use of the funds. And if you don’t need to draw on the capital, you may be able to refinance your business loan at a later point to lower rates or extend the term of the loan, which can help save money in the long run.
You’ve got the right mindset and have prepared adequately. But if you can secure a loan to supplement your income, it will put you that much closer to your goal and make it a lot easier to achieve.