Money is the lifeblood of business, and sometimes, it runs thin! Unfortunately, this always seems to happen when you need it the most! Like when you need to purchase materials to fulfill an order, or having to run payroll while clients owe you money. Whatever the situation may be, sometimes, your business will need access to cash, and you do not have it. This is when a business loan can be the saving grace! But it is not always easy to obtain a business loan, especially if you need it fast!
The key to obtaining a business loan is to always be proactive, and get ahead of a cash crunch. Below, you will find our favorite tips on how to take a proactive stance to get a business loan! And bonus, these tips also help your financial success!
Tips on How To Obtain a Busines Loan
Forecast Cash Flow
If you need to obtain a business loan, it is critical that you know this ahead of time! We suggest that you always forecast cash flow statements six months out. Then at the end of each month, revise it! By doing this, you can see when you will need a cash infusion. Therefore, you can apply for loans ahead of time, thus avoiding a stressful cash crunch!
Organize your Financial Records
When applying for a small business loan, lenders want to see basic financial statements such as accounts receivable, accounts payable, and profit and loss statements. If these files are messy, cleaning them will eat up hours of your time! However, if you always keep these records in order, If you always keep these records organized, when it comes time to get a business loan, you can effortlessly hand them over!
Establish Credit History
Lenders are often weary about lending money to unreliable businesses. How do the determine reliability? They look a credit history. If you business does not have a credit history… then you might be stuck!
Therefore, establish some credit history for your business immediately. The credit can simply be a store account, delivery service account or a business credit card. (Nerdwallet has a great list of their favorite business credit cards!). Use the credit often and make prompt payments. After six months or so you will have a solid track record, and lenders will be more apt to approve a business loan request!
Create a Relationship With a Bank
Trust a report goes a long way in business, especially when you need to get a business loan. So we always suggest that companies establish a relationship with a bank that offers small business loans! That way, when you need money, you already have a strong relationship.
Additionally, build the relationship over time. Start by opening a company checking account. Then, after a few months, add some of the bells and whistles that your bank offers, such as overdraft protection. It may seem like small and pointless tasks, but these steps create a track record and build trust.
Demonstrate Your Ability to Pay Back the Loan
Lenders look at a number of variables including the risk profile of your company.
That is a fancy term for determining whether or not your business can generate enough cash to pay the scheduled principal and interest payments for the loan. This is where your financial statements come in handy!
They also look at your personal credit worthiness, including the assets you have. In some cases you will have to personally guarantee the loan, especially if it\’s the first loan for your company. So prior to needing a loan, spend some time getting your financial ducks in a row so that you can prove that you can pay the loan back!
If you follow the tips above, it will be easier to obtain a business loan! That way, you do not need to waste a tremendous amount of time stressing and solving an inevitable cash crunch!
Additionally, being able to use, and then pay back a business loan will only exponentially help your company’s financial credibility, which will allow you to borrow larger amounts in the future!