Top Tips for Taking Out a Loan for Your Business
Tuesday, May 19, 2020, 6:00 AM | Leave Comment
Money is the lifeblood of your business. Therefore, you will want to have excellent access to capital in order to scale up your business or simply have the short term cash that you need.
When looking for a loan, you will need to be prepared before you approach a lender.
Here are six top tips you should take before taking out a loan for your business.
-
Know your company’s “runway”
The most important thing you need to do is to know your company’s “runway.” This is the amount of cash that you have and how long it will last before your company goes out of business. Most companies will need quick access to at least six months of operational expenses. If you have only three months of “runway,” then you will need to make sure that you have access to another three months to handle any unexpected disruptions or turndowns in the market.
-
Establish a relationship with lenders
You should try to establish a relationship with a lender who will trust you when you need them. You can do this by taking out a series of small loans that you know that you can pay back right away. For instance, you can take out a $10,000 secured loan even if you have $50,000 in the business account.
Sure, you may end up paying a couple of hundred dollars in interest. However, this lender will be much more likely to loan you a larger amount in the future. Try to take out at least three “easy to pay back” unsecured loans before you approach that same lender for a larger unsecured loan.
-
Understand different loan types
It is a good idea to know exactly which loan you need for your business. For instance, if you simply need short-term cash to cover the operational cost, then you will be looking for a capital loan. You don’t want to be asking, “What is a working capital loan?” when you are in front of a lender.
Another type of business loan to consider is a business line of credit. With a business line of credit, you will have a fixed amount of capital available. However, you only pay the interest on the capital that you actually use. This allows you excellent flexibility. Another major type of business loan is invoice financing. This popular loan type allows you to borrow money against the amount due from your customers. By knowing the type of business loans available, you are more likely to find a loan that is best for your business.
-
Demonstrate cash flow
Before you talk to a lender, you will want to make sure that you can demonstrate cash flow. That can come from your sales, invoices, or recurring payments for your business. Be sure you can show you the lender that you have cash coming in. This will make you much more likely to get approval for your loan.
-
Maintain a good credit rating
Much like an individual, you will want to make sure that your business maintains a good credit rating. You can maintain a good credit rating for your business by paying your invoices on time, working with lenders who report to credit bureaus, controlling how much credit that you use, and keeping your personal credit in good shape. A lender will look at your business credit rating carefully when making a decision on your loan.
-
Shop around lenders
Like any other purchase, you will want to shop around to find the best rates for your loan. It is a good idea to look at lenders who loan to your type of business. For instance, if you are a small plumbing business, then you will want to work with a lender who understands the cash flow of a small plumbing business.
Getting your business the money that it needs
Having access to capital will help keep your business in excellent shape. Be sure to know your company’s “runway,” establish a relationship with several lenders, know business loan types, demonstrate cash flow, maintain good credit, and shop around. With the right strategy, you will be able to find the ideal lender for your business loan.
Throw us a like at Facebook.com/doable.finance
