Running a business means having enough money for a variety of costs. Whether it is payroll, an expansion project or repairing equipment, your business could find itself in need of additional working capital. While having access to alternative financing can be valuable to your business’s future, there are questions that you must ask yourself prior to starting the business loan application process.
In this post, we’ll ask five questions that you should be able to answer about your business’s financial situation, and how working capital will play into that. By the end of this post, you will know whether now is the right time for your business to pursue a business loan.
1. What is your credit score?
Most alternative lenders who provide business loans will have a minimum credit score requirement. If your score is below average, this may disqualify you from receiving a loan. Instead of getting discouraged, focus on how you can improve your score. This can be done by paying bills on-time, reducing debt and not opening new bank accounts. Hopefully, this will pay off, and you’ll be able to boost your score and apply for financing in the future. If your score is above average, this will certainly be in your favor when submitting your loan application!
2. Have you researched different options?
Prior to applying, you should examine different business loan providers. Make sure you fully understand their products, qualifications and funding processes. It will be beneficial if you know about them before submitting your application, and you’ll be able to rule out any options that don’t fit your small business’s needs.
3. How much do you generate in monthly sales?
If your business doesn’t have consistent sales month-to-month or your sales ROI is low, you may not qualify for business financing. Most lenders can’t bend on their monthly sales requirement, so applying at this time may be pointless.
In the meantime, concentrate on how your business can produce more sales each month. Consider extending your business hours, offering new products or services or increasing your marketing efforts. By aiming to improve your monthly sales amount, you’ll be one step closer to receiving a working capital loan. And if you already meet their monthly sales requirement, then you can rest assured that you’ll meet this prerequisite.
4. Do you have unpaid debt?
In addition to being stressful, having unpaid debt can make it difficult to repay a business loan. If you already have outstanding loan debt, a lender will be less likely to work with you. And if your debt is from other bills, it will still affect if you qualify. Plus, even if you were to receive a loan, you may be putting yourself at financial risk. If you have too many debts to pay back, your business may not be able to handle it.
Try to reduce your debt as much as possible prior to submitting your small business loan application. That way, you’ll be more likely to qualify, and your business.
5. How long has your business been operational?
Some small business loan lenders won’t provide financing to businesses that haven’t been up-and-running for a certain length of time. Typically, they require that a business has been operational for at least a few months. Consider this before applying; if you’re not going to meet this requirement, you might as well focus on making your business a success until you’re able to qualify!
Now that you’ve answered these five questions, you probably have a better idea of when you should seek additional financing. Receiving working capital from a reliable lender will allow you to enhance your business, but it is important to apply at the right time. Hopefully, now you can focus on either improving certain aspects of your business, or filling out that small business loan application!