Before seeking a business loan, small business owners should conduct a detailed analysis of their financing needs and outline these in a proposal for their lending institution.? Why is it so important that business owners only take on the debt that they absolutely need?? Because borrowing? too much can result in wasted resources and increased costs in the long run, while borrowing too little can keep you from accomplishing your goals and put your business at risk.
Startups will have different considerations than businesses who are seeking to improve and grow their business.? Here we outline important considerations for small business owners who are seeking financing to improve or grow their business.
-Do you need money to expand your business, manage your current cash flow, or cushion against risk?? In other words, determine the strategic purpose of your loan, and whether you are seeking working or investment capital.
-Do you need a set amount of money, or would you prefer a line of credit?? This will be determined in part by whether you are seeking working or investment capital.
-Are your financial goals regarding the loan long-term or short-term?? Again, this is determined in part by the strategic purpose of your loan.? A general rule is short-term loans for short-term goals, and long-term loans for long-term goals.
-How urgent is the need for cash, and how quickly do you need the money?? This will play a major role in the type of financing you seek.? Most loans with good interest rates will take time to process, so it?s always better to plan ahead and cushion against risk, rather than to seek financing during a crisis.
-How great are your risks?? Generally the more risk your business carries, the higher the cost and qualifications for the loan.? High risk lenders tend to have fewer financing options.? Consider the market and competition for your product or service, and any other mitigating factors involved in your business.? You will want to make a sober assessment of your risks, so that you can explain them to your lender.
-What will you use the money for?? Consider whether the money will be put toward buying equipment, hiring new employees, or managing cash flow.? Plus, detailing specifically how the money will be used, as well as providing financial projections and a cash budget that details the flow of funds, and the timing of cash drains and surpluses, will go a long way in demonstrating to your lender that you are a knowledgeable and responsible borrower.
-What is the current state of your business financials and credit?? In general, it will be harder to obtain debt financing if your business has poor credit or a poor financial history.
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