Facing an inventory shortage? Need a bigger physical office space for your growing team of employees? If you’re like most business owners, chances are you don’t have the available cash flow to make sure large purchases. Thankfully there are all types of business financing options to ensure you can make the purchases you need to keep up with your business’s demands. If you’re considering applying for business financing, there are some things you’ll want to do ahead of time to ensure you’re best positioned to get approved. Keep reading to learn more.
Think It Through
Once you know that you need business financing, you’ve made the first step in the process. Before you ever apply for any type of financing, figure out exactly how much money you need and what it will be spent on. Since all business financing comes at the price of application fees and interest rates, you want to ensure that you’re not borrowing too much and in turn paying interest on money you didn’t need. Take the time to create an itemized list of what you need to purchase and how much it will cost. This type of information will also be helpful for a lender to understand what you need a loan or credit card for.
Research and Compare
There is no shortage of business financing options. You can apply for a short term business loan, a credit card, and even a business line of credit. Your situation and purchasing needs will drive the best financial option for you. For instance, if you’re looking to bulk up your inventory, a credit card or short term loan may be more ideal. Or if you’re looking to buy new IT equipment for your team, a credit card with points or money back on equipment purchases may be the most ideal. Of course, the amount of money you need to borrow will also drive what option works best.
Once you understand what financial route you plan to go, you can start researching and comparing options. There are dozens of business credit cards just as there are plenty of different loans to choose from. You can use online comparison tools to find options in your area including Fundera and Nerd Wallet. Look around at various lenders and before deciding and be sure to factor in loan fees, interest rate, APR, and required collateral.
Examine Personal and Business Credit
Credit worthiness plays a huge role when lenders determine if you’re eligible for financing. You’ll want to ensure that both your personal and business credit are in good standing. This includes:
- Overall credit score
- Payment history
- Amount of outstanding debt
- Number of applications in the last year
By looking at various credit factors, a lender will get a idea of the type of borrower you are. If your credit history shows that you make monthly payments on time, don’t have too much debt, and have a solid credit score, you’re much more likely to be approved. When looking at your credit report, if you notice any discrepancies, be sure to notify the creditor and the bureau to see what can be done.
Even though you’re applying for a business loan, your personal credit still holds a lot of weight. This is especially true for startup companies who don’t have business credit. As a business owner you’ll want to ensure your credit is in tip top shape before applying for any type of business financing.
Prepare Financial Documentation
One of the worst parts of seeking business financing is gathering all of the financial paperwork that a lender will want. During the application process, a lender will ask for tax statements, account information, business details, as well as information about your accounts payable and receivable. Be sure you have all of your financial documents in order before applying for a business loan or credit card. This way you’re not slowing down the process in order to find a tax statement from years ago. Your CPA or accountant will be a huge help during this time. In fact, a lender may ask for certain paperwork to be certified and reviewed for completeness and correctness.
Put Scenarios on Paper
No matter if you’re asking for 50 thousand or 5 million, lenders want to know what you plan to do with the money you’re borrowing. To do this, you’ll want to create a short business plan that maps out what you will be doing with the money and how it will impact your company. For example, if you plan to buy new inventory, detail what you will be purchasing, how much those items sell for, and how much profit you intend to make off of each sale. When lenders see that their money is going to good use and profits you in the end, they’re much more willing to approving your application.
Applying for business financing is serious business! Be sure you’re well prepared with these tips to boost your chances of getting approved.
Do you have any experience with applying for business loans? What tips do you have for making the process move more efficiently? Leave us a comment in the section below. Your input could help a small business owner get the loan they need.