Five things to do before applying for a business loan
Approaching a lender for a loan that will give your business a needed financial boost is not uncommon in US. A business loan is designed to help businesses access competitive rates to help keep their businesses growing. However, figuring out whether your business will be able to afford the loan is crucial.
1. Think like a lender
Before applying for a loan, you need to take a step back and think like a lender. Although lender requirements differ from one lender to the next, there are common factors they look at to determine whether you are a loan risk and if you will be able to afford the loan.
Lenders look at whether you can pay back the loan, if your business can generate adequate cash flow to help with repayments, and if you have some form of security to hold against the loan if you won’t be able to pay back the loan.
2. Know your options
According to the CPA US Asia-Pacific small business survey 30% of businesses have a business loan. With so many businesses invested in loans – and such a wide range of possibilities for borrowing – it’s essential to make sure you are utilising the right one.
To make a business loan work for you CEO of Savvy Bill Tsouvalas advises that borrowers should also compare lenders when seeking the right financing.
“Lenders differ in the kinds of loans they offer – secured or unsecured business loans, fixed or variable interest rates,” he says.
“Some [lenders] may not be set up for the kind of loan you are seeking, so might charge higher rates and fees.”
3. Create a plan
When it comes when to managing the paying of a loan you will have to review your business plan. A business plan is a good indicator of your businesses expenses, and how much income it will generate.
This will also determine how much you can borrow when you approach a lender.
A business plan can also show if you are biting off more than you can chew in terms of being able to meet the loan repayments.
4. Revisit your credit report
To ensure smooth sailing into having your business loan approved to continue your business as usual, checking your credit report will be the best place to start.
Most lenders will look at your credit history report to evaluate whether you are trustworthy in meeting payments on loans.
Ensure that everything in your credit report is in good standing, such as payments of other loans and fixtures of errors to make your loan application a smooth process.
5. Have a plan B
Let’s face it. Businesses fluctuate, especially startups. It can take some time before your business starts generating a strong income. It is important to choose a loan payment that comes with flexible repayment features. Some lenders will require that your plan B be in the form of collateral, which is an asset that can be used to pay off a loan.
You need to be careful in terms of what you use as collateral, especially personal assets, such as your home. For peace of mind, speak to a broker who will be able to help you through the process of finding the right business loan for you.