There are instances when business loans are beneficial. Firstly, I can use them to hire labor, rent a functional space, purchase equipment, or procure inventory. Business loans or commercial credit line options also come in handy when I want to skip tough decisions such as increased inventory to meet demands, finance increased sales, and reduce the number of employees. Because business loans are crucial to my company’s operations, I always consider the following factors before applying for one.
Purpose of the Loan
Before I apply for any loan, I first estimate the amount that I need to make an informed decision to borrow from various lenders in the market. On the application form, I always state the amount and use of the loan. Further, I include the purposes for which I intend to use the loan, such as promotional strategies and any other avenues through which I will likely need the funds.
Credit History
One thing that I’m confident that any lender would scrutinize when considering my loan application is my credit history. In the same breath, banks will undoubtedly use my company’s credit history as the primary tool when gauging my credibility. No lender will grant me a mortgage if my credit history reveals past inadequate diligence in servicing a loan that I borrowed. For instance, if my credit score is less than 625, then it might be difficult for a lender to give me a loan for my small business. Therefore, if my rating is below 700, I endeavor to build a robust personal credit score and minimize my debt before applying for any other loan.
Business Cash Flow
Most lenders rely on the cash flow of any business as a key criterion in determining the applicant’s capability to pay back the loan amount. I thus first put my cash flow records in order before applying for a loan. Insufficient cash flow would raise a red flag that I may not be able to afford to repay the loan.
Strong Business Plan
Having applied for loans in the past, I have learned to always bring along a comprehensive business plan with an elaborate explanation of why I need the amount of money that I’m applying for. Lack of a formal business plan is one of the significant reasons lenders turn down loan applications. With a comprehensive business plan, I walk into a financial institution confident that the economics, products, and markets that define my business are in order. A potential lender is more impressed by a breakdown of the loan than a lump sum as working capital.
Different Options
Choosing a lender for funds to inject into a business can be quite a challenging venture. To this end, I always take it upon myself to research all the lending options available in the market and narrow them down to the one that best suits my needs. I do away with any dilemmas or confusion, thus having clarity on the factors that I need to score for the lender to approve my loan application. Besides the traditional lenders, I sometimes turn to my network of friends and relatives, online lending platforms, and peer-to-peer lending.
Expert Advice
It’s essential to seek expert guidance when seeking financial aid for a business. Most lenders are indeed keen to know that an applicant has sought advice from knowledgeable players in the industry. Such experts include accountants and other team players tasked with making financial decisions. Still, I can also read reviews on online platforms such as websites. It’s one way of proving to myself that I am serious with my business and that I will utilize the loan given for the intended purpose.
