8 Questions to Ask Yourself Before Applying for a Business Loan
Most small business owners need a loan at some point. As your business grows, your need for funding does not diminish. Whether you need to hire additional employees, want to introduce a new product or service, expand your facilities, or purchase new equipment, growing your business requires capital.
Before you start filling out loan applications there are some things you should consider, ask yourself these 8 key questions:
1) How Much Is My Business Worth Today?
Lenders want to know that your business is worth enough to cover the loan. You need to have a sustainable business model that will last at least as long as the term of the loan you are seeking.
2) How Much Do I Really Need?
Make sure you know exactly how much money you need for what you are planning. The best way to do this is to create a monthly cash-flow projection. Lenders want to see that you have thought this through.
3) What Is The Money For Specifically?
Lenders want to see a detailed plan for the money. If you plan to purchase new equipment you need to show price quotes and demonstrate why you need the equipment, and how it will benefit your company's growth.
4) Will The Money Help My Business Grow?
If you're trying to borrow money to cover payroll or other everyday expenses then your business is not going to make it further than a few months. By not using the money to generate more revenue you are only delaying the inevitable. You need to find ways to increase revenue and decrease costs so that your business can survive.
5) How Urgent Is My Need?
Whenever possible, it is better to anticipate future needs than try to find money under pressure. It's much easier to gain approval for a loan when your business is doing well than when your business is already struggling, so plan ahead.
6) How Are My Personal Finances?
Until your business grows beyond a "small business" (upwards of $5 million in revenue per year), lenders are going to rely heavily on your personal financial situation and credit score in determining the creditworthiness of your business. So make sure these you are in good standing before applying for a loan.
7) Am I Likely To Qualify For A Loan?
Applying for a loan and being turned down will hurt your credit score. It's a good idea to contact lenders and ask for their specific requirements, such as credit score and cash flow, before you apply.
8) How Strong Is My Management Team?
Businesses looking for funds to grow need to show the ability to effectively manage the growth. If your current team isn’t up to the task, consider adding a new hire to help take your business to the next level.
Grow Your Business
Before applying for a growth loan you need to make sure you have thoroughly determined your need, reviewed your current situation, and considered all of your options. If you can show that the money will be used to increase revenues then you are well on your way to qualifying for a small business loan.
Ready to apply for a loan to grow your business? Make sure you're properly prepared with this help Small Business Loan Checklist.