Getting debt financing or a loan for your company isn’t as easy as it might seem. Banks and lenders want to have some proof or reassurance that you’ll be able to pay back what you’ve borrowed, before they will lend you the money. Although it is possible for even a qualified and prepared company to get turned down for a loan, there are several steps you can take to increase your business’ chances of getting the financing it needs to grow.
Allow Time for the Process
The process of getting a business loan might take considerably longer that you expect. If you need money or cash within a week or a few days, that might not be enough time for a lender to review your loan application, approve it, and issue you the funds.
Allowing enough time for the loan application and approval process also means developing a clear understanding of whether debt financing is the right option for your comany at the moment. If your business regularly finds itself in need of cash, for instance, it might make more sense to re-evaluate your budget or find ways to improve cash flow, instead of taking out a loan.
Have Your Financial Details in Order
Banks and lenders offer the best interest rates and loan terms to people with the best credit scores. Depending on how long your business has been operating, a lender might look at your own credit score when deciding whether or not to lend to your company. If your score is below 680 or so, it is worth the effort to bring it up before you apply for a loan for your company. Your repayment history plays a big role in determining your credit score. If you have a history of missed or very late payments, making a concerted effort to always pay on time will help improve your personal score and the likelihood of your business being offered a loan.
Along with focusing on your own credit score or the credit score of your company, it is important to have plenty of documentation to offer a bank to show that your company has steady earnings, that it’s repaid any past loans as agreed, and that it has some type of collateral to offer.
Know How You’ll Use the Loan Money
A lender isn’t going to give a business financing “Just in case.” Before you start the loan application process or begin to shop for financing, be sure of the reasons why your company wants the money and provide the bank or lender with a specific plan. For example, your business might want to use financing to purchase more inventory so that you can boost the amount of products you make or sell. Another feasible use of the funds might be open a new warehouse or store location or to lease bigger offices.
Understand the Different Loan Options
Not all business loans are the same. Knowing the type of loan that will best help your company and having a clear reason and understanding of why that loan is the best option will improve the likelihood of a bank approving your loan application. For example, a business line of credit is a type of loan that allows you to borrow the amount you need, then repay it and borrow more if necessary. It is similar to a credit card, but typically has lower interest rates.
In the case of an installment loan, your company receives a lump sum amount which you repay on a set schedule. Once the entire amount is repaid, you don’t have the option of borrowing more, unless you apply for an additional loan.
Have a Plan for Repayment
Having a clear, well though out plan for repaying your company’s loan is likely to improve your chances of getting approved. Have some sort of collateral or cash reserves that you can tap in case business is slow or your revenues aren’t what you expected can help put a lender’s mind at ease and can signal to a bank that your business isn’t likely to default on the loan.
A business loan should help position your company for success. Working with a virtual CFO can help your business prepare for the loan application process and increase its chances for approval. The team at New Direction Capital is here to help your company grow and reach its financial goals. Contact us today to learn more.
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