According to a recent financial report from the National Federation of Independent Businesses (NFIB), nearly a third of small business owners borrow on a regular basis. These companies are obviously comfortable using loans to fund cash flow gaps, but the report also showed that 57-percent of businesses do not want a loan.
If you’re reading this article, you’re likely part of the other 10-percent. You’re not against taking out a loan, but you also don’t regularly borrow. To decide if a small business loan is right for you, we recommend asking yourself these 10 questions.
You won’t qualify for a small business loan if your company is less than four months old. Most loan providers require a business to be somewhat established. If yours is still in its infancy, you might be better served by a startup loan or an angel investor.
Loans aren’t a “one size fits all” solution and there may be a loan alternative that works for your company. We’re not saying that a loan should be your last resort – many businesses use loan money to fund projects that ultimately make them more money in the long run. That said, try these alternatives on for size:
If these changes don’t net you the cash you need …
Here’s how you should prioritize your search for a small business loan:
Don’t get discouraged as you go down the list. Chances are you’ll be able to find a source of funding from one of these options. Lendza has information about a dozen different loan types. So, there’s likely a fit for you. We can help you find it.
Too often, small businesses reach out for funding before they prepare a budget for paying back the loan. That’s bad business. For a loan to be useful, you will need to use the loan money to make money. Otherwise, you won’t be able to pay back the loan.
If you rely on the loan provider to tell you when you should repay the loan, you’ll risk agreeing to a loan term that isn’t right for your company. So figure out your ideal loan term before you apply. Then, try to find a loan provider that can match your timetable.
Whatever you do, don’t be overly optimistic about paying back your loan. This is what gets people in trouble. You don’t have to plan for the worst, but you definitely need to plan.
Your loan payments will be an extra expense every month until you’ve repaid the loan. How much can you afford to pay each month and still be able to keep your business afloat? Figure out that number and borrow accordingly.
Some businesses couldn’t survive without borrowing money. Most retailers don’t make money until the end-of-year holidays. Most new restaurants take four to five years to pay back what it cost them to open. Without loans, many businesses simply couldn’t survive. Find out what the norm is for your industry.
Small business loans aren’t as regulated as other types of loans. That means if you don’t use a bank, your loan provider might not check to see if you’ve already taken out a loan. So it’s your responsibility to figure out if you’re already have too much debt.
A higher credit score usually means a lower interest rate for your loan. The opposite is true, too. If your business suffers from a bad credit rating, then you will likely have to pay higher fees on your loan. Fortunately, there are ways to increase your small business credit score:
Meet with a financial advisor to figure out more ways to improve your business credit score. A higher score could save you a lot in interest payments throughout the life of your loan.
We’ll do everything we can to help you find a small business loan provider. But we do not guarantee you’ll get a loan. Have a plan B in case you don’t. The longer you wait to admit the money isn’t coming, the worse off your company will be.
If a small business loan is the best choice for you, we’re ready to help you find a loan provider. Go ahead and fill out our form to find out which loan product fits your needs.