Running a business is hard. It’s even harder if you don’t have the money to fund your business strategies and goals. Without a helping hand in the form of cash, you won’t be able to grow your business.
That said, small business loans are the most reliable source of financing. Unfortunately, it’s not easy to get approved. Applying and preparing for a business loan can be tricky, particularly if this is your first time. However, you don’t have to worry as this article will share with you a comprehensive guide to help you prepare for and ensure a successful business loan.
Understand Your Needs
The first step is to understand why you need a loan.
Perhaps, you need to hire a freelancer or build a website. Maybe, your clients are paying invoices late, and you need to pay your employees. Or, probably, you’re thinking of taking your business to the next level, opening a new branch, or simply revamping your commercial space. Regardless of the reason, ensure that you have a detailed plan so you can use it properly.
Thus, you also need to identify how much funds you need, how much you can afford to repay, and how soon you need them. When considering these aspects, make sure to think of seasonal fluctuations or potential financial scenarios that your business may face.
Prep The Necessary Documents
It’s good practice to document everything about your business. This includes your assets, revenue, debts, and expenses. You need to back these items up with the right paperwork. Avoid waiting until you’re finally applying to get organized. Otherwise, it can really slow down your application and receiving of funds. However, by establishing your bookkeeping and accounting processes right now, you can make the loan application process smooth and easy—both with current and future applications.
If you need someone to lead and manage your finances, outsourcing fractional CFO services is a good option. This way, you can have streamlined and proactive cash management, complete with services like bookkeeping, tax services, and accounting. They can also help you prepare the necessary documents you need, whether for applying for a business loan or optimizing your finances.
Traditional VS Online Lenders
Decades ago, the only way to get a business loan was through traditional lenders, such as banks, credit unions, and other financial institutions. Today, however, getting a business loan online is also an option. But, which one should you choose?
Either option has its own pros and cons. Dealing with traditional lenders is generally cheaper. It’s also easier to get a loan if you already have an existing relationship with the lender. Plus, established banks and other traditional lenders have already established their reputations, ensuring minimal risks. That said, it can be difficult to get approved for traditional loans. Plus, getting your funds can take weeks.
Meanwhile, online business loans are best known for their convenience. It’s relatively easier to apply for online loans, and they have a faster funding time. Some services also offer to fund those with bad credit. Take note, however, that the convenience you get comes with a higher interest rate than banks. If you’re not too careful in choosing your online lenders, you may also end up getting scammed.
So, consider weighing in your needs and decide which option is best for your business. Consider your approval chances and for what you need the funding.
Build Your Credit
Your credit score has a significant impact on the credibility of your business. It shows lenders that you can pay your bills on time and can manage your debt effectively. That said, you need to start small. As a startup, you probably won’t qualify for bigger bank loans; however, a business credit card should be a good starting point.
As you responsibly use your business credit card, you can build your business credit and boost your credit utilization ratio. These can help boost your creditworthiness and help you get bigger and better loans in the future.
Take note, however, that your business’s loan approval is more than your credit score. Most lenders also consider other factors, such as business reputation with your community and customers, your business’s age, and previous experience in the industry.
Getting a business loan can be daunting. Obtaining a loan to grow your business can be an exciting venture, but, at the same time, it also makes you worried about making a mistake that could negatively impact your finances. Hopefully, this article has helped you learn how to become fully prepared when it’s time to take out a loan.