There is really no denying, one of the most complex and difficult decisions that any business owner – especially the ones in charge of smaller companies – needs to make is whether or not they should take out a small business loan. No matter if your goal is to expand your company or keep it financially stable, there are some factors that you should consider before heading to a lender. Take a look at this checklist if you’re interested in getting a small business loan.
If you are thinking about taking out a small business advance, this article might help you quite a lot. The text below will feature 5 factors that you must consider before taking it out, as well as some things that can easily hinder you from getting approved. Let’s take a closer look:
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Factors to Consider
In order to determine whether or not your firm can actually sustain getting a small business loan, there are some factors and things that you must consider before heading to a lender or a bank. The things you’ll want to closely and wisely think about and decide on are:
1. Figuring Out How Much Money You Need
If you have determined that you need to take out a loan, the very next thing that you should do is to learn and figure out how much money your company actually needs. Do not forget to include all the fees and expenses you’ll have since you won’t want to go through the same process several times, hence, you’ll want to ask for an amount that will help you with your end goal.
On the other hand, you should also be careful about taking out a credit that is larger than you need, especially since the interest rate is higher with larger mortgages. Additionally, some of the lending companies might not be able to provide you with the funds you require, which is why you should do some digging before asking for funding. You may want to check out sites like I-Credit, a Licensed MoneyLender for more details.
2. Is it Urgent or Can it Wait?
Another important thing to consider is how fast you actually need the funds. Why you might ask? Well, if it is less urgent, you’ll have better options. If you have enough time before you need the funds, there are various things that you can do that will help you with getting approved.
For instance, you can do some digging on the lending companies you are thinking about approaching, you can work on improving your credit score, and you can also precisely determine how much money you need. Hence, if you think that you may need a loan in the next few months, ensure that you start preparing early on.
3. Know Your Lending Options
Nowadays, there are more and more lenders that want to work with small companies, and some of the main types that you can consider approaching are:
– Direct Online Lenders – there are various platforms that allow you to go through the entire application process easily and time-efficiently. And you can always do some digging in order to learn more about these online platforms.
– Community And Local Banks – these are traditional financial institutions that can help you with getting a small business loan, however, ensure that you compare the interest rates and fees before opting for the first bank.
4. Your Credit Score is Crucial
There is only one thing that will determine whether or not you can get a loan and that is your credit score. Before you even apply, you must see what your credit report is and check it in order to see whether or not it is accurate. If you notice a mistake, you can always contact your bank in order to resolve the problem. Keep in mind, the higher your score, the better chances you’ll have of getting approved.
5. Factors That Can Hinder You From Getting Approved
There are also things that can easily hinder your business from getting approved, which is why you should know about those things. Besides the aforementioned credit score, some other things that can stop you from getting approved are:
Your Time in The Business World
Any company that has been working for less than 2 years is thought to be a start-up company. And generally speaking, most start-ups cannot get approved for a traditional loan that you can get from a bank. This means that your company needs to be operational for more than 2 years before being able to apply for a loan.
If you have been working for less than 2 years than you’ll need to pay a higher APR. This is due to the fact that small businesses carry higher risks, hence, lending companies often raise interest rates. Additionally, you need to ensure that you have enough monthly earnings to pay back the loan, which leads us to our next point…
Your Monthly Revenue
If you have been working for less than 2 years, you should know that your company needs to generate at least 5.000 dollars each month to be eligible for the loan. The money you can get from the lenders will depend on your overall monthly earnings, which means that you might not be approved even if you do generate the mentioned sum.
You can always consult and talk to your bookkeeper in order to determine your overall, quarterly, and monthly revenue. From there you can determine whether or not you can get the loan, and you can also come up with different strategies such as sales or discounts that will help you improve your revenue.
As you can see, there is actually a wide range of things that you’ll need to consider before actually going to a lending company and applying for a loan. Considering all the aforementioned things will make the entire application process easier, less time-consuming & stressful, and it will also ensure that you improve your chances of getting approved.
So, now that you are aware of the factors that you need to carefully think about, you might not want to lose any more time. Instead, you should go back to the beginning of the article and start thinking about whether you really need a loan in the first place, from there, you can easily go through the rest of the steps mentioned in the article above.