With all the changes that have impacted business activity across the US, how do small business owners find the capital they need to keep their business thriving, or in some cases open. Higher restrictions and tighter guidelines has made approvals from traditional business loans through local banks extremely difficult. The landscape is different today than it was a year ago. With that in mind, as a business owner should ask themselves these three questions.
1. Is my business ready to take the next step?
What is the next step I need to take for my business? The answer requires an honest evaluation of where you really are.
- Is your business losing money?
- Do you have a strong business plan?
- Is a sound marketing approach in place?
- If you were able to get a small business loan, do you know what you would do with it?
Every business experiences the good and the bad. The biggest setback for business owners is admitting the made mistakes that they make running their business, making it harder for them than it needed to be. As a business owner differentiating between wants and needs is essential. Borrowing working capital needs to provide a positive ROI or increase the value of your business.
Stepping back and overlooking your business operations, and why you need a small business loan is the first step. Will the borrowed capital help you take the next step or increase the value of your business, or is simply a last-ditch effort to stave off the wolves?
2. Do I understand my options and which best fit my business needs?
The landscape of small business financing has changed in just a few short years. In fact, things have shifted enough where small business owners are compelled to be more finance savvy. Although small business owners might not need to be financing experts to run a business, it’s important they become experts in how to keep their businesses financed. A big concern for most small business owners is understanding or identifying which financing that will best meet the need. For example, it’s common sense that you wouldn’t use a 15 Year Mortgage to purchase a car. Short-term financing needs like buying inventory, ramping up with staff to fulfill a new contract, or purchasing office equipment are very different than the financing require for purchasing a new warehouse, buying heavy equipment, or other long-term financing need. While a five- or 10-year term loan might be a good idea for one, there are likely other options that would be better suited to the other. What is more, looking for the wrong type of loan to fit your business need could potentially cost more than it should and result in a denied loan application.
3. Do I understand my current credit situation?
Small business owners are evaluated on both their personal credit score and their business credit profile.
Although different lenders have different credit thresholds, many look at your personal credit score as a secondary metric. For example, a personal credit score below 680 will likely result in a rejected application at the bank and a score below 680 will make getting an SBA loan nearly impossible. Online lenders will accept credit scores above 500 and work with borrowers that have lower personal credit scores.
Answering these three questions will help determine whether or not a small business loan will increase profits or add value to your business.
Being able to answer these questions will likely put your application on the top of the pile—particularly if the other loan applications cannot.