As a business owner, your greatest stress is likely ensuring you have enough money to run your operations. Even if you have a lucrative business, there might be times that you require more financing, and that’s okay. Many business owners turn to alternative lenders to receive the additional working capital they need. Still, there are certain components that you should consider prior to submitting your application. In this post, we’ll explain what you should consider, so that your business remains financially responsible!
- Your Credit Score: When you apply for business financing, you can expect that the lender will run your credit score at least once. This will show up on your credit report. It’s important to note, if you have your credit ran repeatedly, this could affect your score. Therefore, if you already have a less-than-stellar score, you should consider how this could lower your credit. To avoid this, you might benefit from waiting to apply until you raise your credit score. In addition to ensuring that your credit score isn’t negatively affected, you’ll also have a better chance of getting approved when you apply.
- How You Want to Use the Financing: Remember, all business financing isn’t created equally! How you want to utilize the financing will depend on the amount and term that you accept. For instance, if you’re interested in a growth project, like opening a new location or expanding a product line, you’ll need enough money to finance these projects. Then, once the project has been completed, you’ll (hopefully) be generating more sales, making it easier to repay the loan.In comparison, perhaps you need funding to pay bills, repair equipment, or for another immediate emergency need. You’ll likely want to consider a different amount or term than you would if you were pursuing a growth opportunity or long-term project, since it may take you longer to repay.
- Already Having a Loan: Having multiple loans at one time is often called loan stacking, and it’s important that you understand the effects it can have on your business. Like a poor credit score, loan stacking can deter funders from wanting to work with you. Even if you receive an offer, it may be detrimental to your business’s finances to accept it. This is because you’ll be making more than one loan payment at the same time, in addition to paying bills and other necessary business costs. This could put your business’s future in jeopardy, or make it difficult to repay all your debts on-time.
- Existing Debt: It isn’t abnormal for businesses to acquire debt. Still, lenders view businesses with debt as a risk. Understandably, they wouldn’t want to provide financing to a business that has a history of being unable to pay off an existing loan, make timely payments, or worse, defaulting. Therefore, if you’ve racked up considerable debt, whether it be from credit cards or other forms, you might want to put off applying for financing. Like stacking, receiving additional financing when your business is already drowning in debt can be risky. Due to this, you may be better off waiting until you’ve paid off some of your debt before applying for additional financing.5. How Long You’ve Been in Business: The length of time your business has been operational could make or break your loan qualification status. Some lenders have a time-in-business requirement, making it more difficult for startups to attain financing. Due to this, it is pivotal to thoroughly research before applying for a loan. It’s essentially pointless to apply if you won’t be qualified due to the length of time you’ve been in business.
In addition, your business’s needs will likely change over time. If you’ve only been in business for a few months, your needs could change later.
Is It Time for You to Pursue Business Financing?
It can be difficult to decide if it’s the right time for your business to pursue financing. Even if you could use the extra cash, it is important to consider the factors featured in this post. Once you do that, you’ll be able to determine the best move for your business!
Author – Katie Alteri is the content marketing coordinator at Fora Financial, a company that provides small business loans to businesses across the U.S.