If you’re running a small business and you’re experiencing cash flow issues, looking to expand, interested in purchasing new equipment, or need to get more inventory for the upcoming busy season, a small business loan may be a great option for you.
But you should never take out a small business advance without thinking your situation through – and considering your options. So, in this article, we’ll provide you with a few things you should think about before you take out a loan. Let’s get started.
1.Is the Loan Essential for Your Business?
First things first – you should only take out a small business advance when you really need it. A loan is not something you should take out without thinking through the consequences – because if you fail to repay your debt, your business could be at risk.
If you need a loan to purchase new inventory, or renovate an aging store or facility, that’s a good example of needing a loan. However, you should not use a loan to do frivolous things – like pay for a team retreat, an employee party or another such non-essential purpose.
Only take out a loan if it’s truly essential for your business. Following that guideline is the best way to avoid bad debt for your business.
2.Do You Have Good Credit?
The better your credit is, the better of a rate you can get on your loan. Both your personal credit score and your business credit score will affect your ability to get a loan – and determine whether or not your loan will have to be secured with collateral, such as your property or your business. A credit score of 700+ is ideal for securing a loan – while a subprime score from 650-680 or lower means you may have more difficulties finding a lender and will have to pay higher rates for your loan.
3.Do You Have Time to Shop Around?
You can always find more than one lender who is willing to work with you, and if you have the time to do so, this is the best way to secure a good rate on your small business loan. Shopping around lets you compare the APR and loan terms from each lender and pick the one that works the best for you. It’s always best to plan to shop around for loans from multiple lenders whenever possible.
4.How Quickly Do You Need the Money?
If you need money within a few days, a traditional bank loan may not be the best option – as the process of applying can take up to a week or more. You may want to seek out alternative types of small business loans – or even a merchant cash advance, which may allow you to get your cash in just 1-2 business days.
5.Will You Be Able to Repay Your Loan Based on The Stated Terms?
Be realistic and look at your cash flow and expected returns for your business. You need to make sure that you can repay your loan on time – otherwise you risk high fees, damage to your personal or business credit, or even the seizure of your assets, if you take out a loan with collateral.
Make sure to examine the loan terms thoroughly and analyze your cash flow. If you don’t think you’ll be able to pay back the loan based on the stated terms, don’t take the loan. You will only make your financial situation worse, in the long run.
Follow These Tips – And Stay Informed When Applying for Loans!
Small business loans are useful tools, but they can be dangerous when used improperly. But by asking yourself these five simple questions, you can protect your finances when applying for a small business loan!