10 THINGS TO KEEP IN MIND BEFORE APPLYING FOR A SMALL BUSINESS LOAN
Every business needs some sort of finance to keep afloat. Not only is money needed to start it up but money is needed for day to day activities and investments as well. Especially for small business finance becomes even more crucial because it is essential for growth. Without liquidity, these businesses cannot survive as money is needed to cover cash flow gaps, meet working capital requirements, etc.
As these businesses are small they have little or no reserves and limited owner’s capital. So the only option that remains open for them is a small business loan. But loan approval can be quite confusing as well. Selecting the right type of loan with less interest, accurate period, and which is optimal for business needs is difficult. There are many things to consider. But fast capital 360 wants to make things easy for you.
That is why we have compiled a guide containing the top 10 things you should know before diving deep into small business borrowing:
- Strategic Borrowing
For small business each penny matters. Large enterprises can afford heavy interest rates but smaller ones cannot as they are already short on cash and heavy on expense. So it is necessary that if you are a small business owner, you borrow only what you require and that too strategically. This ensures that the loan that you take is the most economical as well as effective. Just don’t go for lower rates as they can be deceiving. You might get tired in a longer period loan which can relatively increase your expenses.
- Anticipate needs
The best way to conduct strategic borrowing is to anticipate your business need before making any financing decision. Be very cautious as you ca both under or over-borrow. They are both detrimental. Ensure that the loan should make sense at several levels. It should be preparatory rather than a reactionary loan. This will enable you to get optimal rates and fulfill your business needs ideally as well.
Moreover, anticipating needs also provides you the opportunity to predict future financial requirements as well. This allows you to evaluate the credit situation beforehand and enables action to improve weak profiles without further ado. This then results increases the odds for approval as well.
- Know the market
The biggest reason for small business downfall is imperfect knowledge. As they don’t have large financial departments, they are unaware of the market complexities. They jump into the web of lending and borrowing without any knowledge. Remember loan taking is a big step and can decide the future for you.
So to enter this crucial stage you have to survey the market to know which loan will be best for you, Strategic borrowing will be of no use if you don’t know the rates and types of loans available in the market.
- Improve your business standing
Moreover, to get better loans your business position matter a lot. You should be aware of your financial condition as well to ensure that your loan complements your standing. For example, if you are facing a time crunch then you should know which loan providers speed up the process. You should also have alternative funders available at hand. Instead of just relying on your bank, spread up the risk by investigating other sources to make the best use of your business positron.
This is because as per research 77% of small businesses that go for large banks get denied. Moreover, banks take time in assessing the application, have limited funds, and they also charge higher than average. So keep everything in mind. Also, keep your financing period and credit score in mind. Every loan has a different time attached to it in terms of interest rates, payback, and pay off.
Interest rates are the most crucial aspect of the loan. This is because they determine the impact on your profitability as they make the major portion of finance cost. As small business needs to cut down on expenses they have to ensure that the interest rate provided to them are not more than they can bear.
But in most cases, SBO fails to realize this and end up taking loans more than their capabilities. So if you want to prevent the same downfall, keep your ROI in mind. This is your return on investment. Your interest rate should never be higher than this.
- Use collaterals
We know it is hard for SBO to get a competitive interest rate as usually there market positioning, and the credit score is low. But with the right knowledge and planning, you can get optimal rates. The best way to do so is to use collateral if you have it.
- Apply with caution
Borrowers need to understand that lending isn’t child’s play. The way you ponder before deciding on borrowing, similarly, lenders also take time and thoughts before accepting an application. The applying process may seem like a piece of cake, but within that piece of paper are many factors that can get your application rejected.
- Make lenders feel confident
To assure lenders you have to make them understand the reason behind taking the funds and loans intended use. Give them a sufficient explanation to keep them assured that you will use their money well. Remember working capital is not a good reason. You have to be more specific.
Like in all business aspects professionalism matters a lot while applying as well. It might be confusing how a piece of application requires professional standards. But in reality, the way you fill the application reflects a lot about your business.
- Get ready to meet the lender
Remember before submission of your small business loan application, it is best to meet with the lender. This increases your chances of approval. If an SBO arrives at the creditor’s doorstep with all the necessary documents, it gives a good impression. Not only that but it also gives you a head start.
From clear revenue records and polished business plans and statements to compiled tax statements and executive summaries, all of it can act as support! Preparing this information pre-hand and presenting them increases the lender’s ability to analyze your business appropriately and speed up the process. This further increases your chances of getting selected.
So the verdict is that for applying for a small business loan you have to appeal to lenders in all aspects. You cannot give them even a single chance to deny your application. They are very thorough so don’t try to outrun them. They are there to support you and are not your enemies. So provide all your current and updated business information to your best knowledge!