Whether it’s for a big expansion or just some extra cash to keep things moving, most small businesses need finance at some point.
However, applying for a business loan involves a lot more than just filling out some paperwork.
There are a lot of things to consider before taking out even a small business loan, so it’s important to do your research. Try asking yourself these 5 questions before applying for your business loan….
Will my business qualify?
The last thing you want is apply for a loan you’re not going to get – this will hurt your credit score and your chance at securing funds in the future. You need to understand the lender’s lending requirements before you apply and requirements will differ from lender to lender. The most common requirements will be things like positive cash flow projections, assets for collateral, business plans, good credit history etc.
How much do I really need?
This is where you need to be brutally honest. Just because a lender says your business is eligible to borrow up to a certain amount, doesn’t mean you actually need that much. You don’t want to borrow too much that you struggle with the repayments but you also don’t want to borrow too little that you won’t get the benefit of the loan. Do some cash flow projections to figure out how much you can afford in repayments and some estimates on how much you’ll need in total.
Do I have the cash flow to repay the loan?
It’s important you don’t borrow more than you can manage. Other lenders, particularly the banks, will sometimes require you to show good financial projections. Even if they don’t, it can be a good exercise to calculate your repayments and make up some projections for yourself. It’s always good to have a roadmap, and you want a bit of wiggle room with your repayments too.
Do I need collateral?
This one’s only for “secured” loans. Take a look at your available assets and try to calculate their value. Low-ball it here; odds are the banks won’t value it as high as you would. In most cases, a bank will value your asset at 60-70% of what you think it’s worth. Some non-bank lenders won’t ask for collateral, so if you are going down that route you won’t have to worry about this one.
Will the money help my business grow?
Pretty simple; what is the loan for and how does it factor into my business plan? Taking out a loan for operational costs and to help cash flow is fine, but make sure you’re measuring the return on your investment. You don’t want to find yourself in the same boat six months down the track, taking out another loan. It’s all about growing your business, so you want to generate as much revenue from the loan as you can. Whether that’s investing in marketing or renovating or whatever is up to you!
We can help you
At Craig Tracey Lending we take the time to listen and understand you and your business. Contact us now to find out how: Contact Us