Is now the right time to get a business loan?
Qualifying for a loan can be difficult. Especially in the early years of running a business. These years are crucial and are the years most startups need capital.
Here are six considerations to help you get the financing before you need it:
1. Build a solid credit rating.
Borrow. Have credit accounts. But pay them back and do not max them out. Their purpose is to build a solid credit rating as quick as possible.
Once you’ve established a positive credit score you’re now in a position to apply for a business loan. You might want to apply for a loan sooner than you think. Continue reading for why.
2. Apply for a loan before you need the cash
All business should have a healthy cashflow. It is especially essential for a young business. Healthy cashflows help you avoid getting into financial trouble. How do you cover unpredictable costs and day-to-day expenses? You might want an alternative to credit cards and their exorbitant interest rates.
Have you considered a line of credit? A line of credit can provide a new business with needed wiggle room and flexibility. Business owners need this to invest in opportunities that will bring in more revenue and nurture growth.
Business owners need to take care of unforeseen yet unavoidable expenses. Having access to “rainy day” funds can help, rather than putting them off to the company’s detriment.
3. Waiting too long for a loan can be risky
A company in trouble isn’t going to convince a bank to approve a loan. This is why it’s wise to speak to a lender well in advance of when you think you’ll need additional funds.
When a business is performing well, a loan or line of credit may not be on your radar. But when the books are looking their best is actually the perfect time to ask. As a rule of thumb it’s wise to apply for twice as much as you project your business actually needs.
4. Borrow funds early to fuel growth
When a business is ready to expand, the need for cash can be the only thing holding it back. Do you have plans to buy another business, open another location, or scale to serve more customers?
Talk to the bank earlier rather than later. There are always financial obstacles in the way of meeting your business goals. Your bank can help you overcome these.
5. Always think ahead
Don’t try to manage long-term costs with short-term financing solutions. A line of credit is a short-term financing solution. It can lead to cashflow problems if used for long-term costs.
Keep your financial records up to date – and that means weekly and monthly. Build a budget with cash flow projections so you can see when you’re in funds or when you’re going to run out of money. Pay a professional at E3 to get this right. It is critical. Few business owners have the skill or the software to do this to bank standards.
Applying well in advance can help preserve your savings and short-term financing reserves.
6. The bottom line
So what’s the simple answer to the question “When is the right time to borrow for the business?”
For most companies, as soon as a lender will approve financing.
Talk to your bank about your desire to invest in your company’s growth and sustainability. This way you won’t miss any opportunities to secure the funds you need to achieve your dreams.
Get in touch with the smart accountants and advisors at E3 to help get your funding request over the line. Contact me, Jamie Tulloch, and I’ll help you get started!
- Phone me: 0800 11 33 99
- Email me: firstname.lastname@example.org
- Or Skype me: e3jamie