Small businesses need to be cautious when seeking financing. There are many options available. Taking the time to answer this 10-question quiz will guide you to the solution that fits your needs and your budget.
10 questions to ask before applying for a small business loan
Do I need money quickly?
If you want to expand your outdoor deck, but your kitchen sinks begin to sink during the busy season, your priorities change quickly. These types of emergency situations require quick cash flow. The best type of loan here does not require any collateral: usually a merchant advance.
Which payment options are best for me?
Getting a whole cash flow history or your purchase orders is only part of what you need to do to get a loan. Taking the time to consider how and when you repay it is a big part too. Different types of loans have different requirements.
Hanna Kassis works for Segway Financial. He spoke with Small Business Trends about how this aspect of underwriting a loan needs to be carefully considered.
"People need to look at the frequency of payments and whether it's daily, weekly or monthly that suits them best," he said. This affects the type of loan you receive.
How can my credit score be taken into account?
You can not ignore the essential if you hope to get financing for your small business. Your credit score is extremely important, but not in all cases. For a small business loan, you usually need to have good FICO numbers. However, the provision of invoices or purchase orders can be an alternative for some other types of business loans.
Having a bad credit score may limit you, but you can still apply for certain types of financing.
Can I repay a loan?
Small business owners need to make sure that there is enough money to pay off their loans.
Kassis explains, "Their cash flow must support the size of the payment, without profit margins, small businesses could quickly end up in the negative."
What type of warranty do I need?
For some types of financing, the answer is none. For others – like a small business loan – it is necessary to show the assets. Long term commercial investments generally require it.
What are some types of paper guarantees?
There are several examples of so-called "paper guarantees".
"You have to find a loan that fits your business," says Kassis. "For example, if you have receivables, you should get the factoring." There are other specific requirements for other loans, such as cash flow histories and even actual bills.
Is sitting on an application important?
In a word, yes. This goes for factoring A / R and all the rest. If you need a quick fix like a merchant cash advance or something longer term like a business line of credit, follow up once you start the account application. If you block, lenders could re-write the file. This creates a doubt and decreases your chances of getting money. The hesitation can ruin your chances of getting the loan that best suits you.
Will I need more than one loan?
There is a big difference between a loan to repair a broken machine and another one that makes you survive a recurring seasonal drought in your restaurant or other business. Decide if your needs will be continuous. In some cases, it means the difference between waiting a few days to get your money or up to a month.
How fast will I see a return on investment?
The project you are thinking of may not generate revenue immediately. And in the case of a renovation, for example, may take some time to complete. The cost of the loan comes into play here. For example, a cash advance would be too expensive if you build an addition. However, it could be perfect for a marketing project.
How much do I want?
If you need more than $ 100,000, you must put your finances in order.
"You should have your basic business information at your fingertips," says Kassis. "You have to collect things like merchant accounts, bank statements, and business licenses." He also suggests you use an online tool like QuickBooks to configure the financial statements.
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