We’re willing to bet that some of you have been pre-qualified for a credit card. But have you ever wondered how they got your name and address in the first place? How it works is a credit card company buys your information from one of the credit bureaus and if your credit score is high enough, they send you a letter saying you’ve been pre-approved. This same kind of process happens with small business loans; though it’s not nearly as common.
What happens more often is business owners get pre-approved on their own to see how big of a loan they can afford. They do it to make a more accurate business plan. Because without a ballpark loan figure, planning the future of your business is a lot like trying to shop for a house when you don’t know what kind of a mortgage you’ll be able to get.
Simply put: loan customers look to be prequalified as a way to determine how large of a loan they may get. It’s a smart approach. But before you base your entire business plan on the dollar loan amount you’re quoted, make sure you set yourself up for better rates. Here are a few steps to take before getting pre-approved for a loan.
To request funding from a site like Lendza, there are some prerequisites you’ll need to meet:
Many of our funding providers won’t lend to startups. They want to lend to businesses that pose less of a risk for defaulting on a loan. Newer businesses can be more risky because they don’t have a proven track record. It helps to have a long, successful history when applying for small business funding.
One of the things a lender will look at when determining whether or not they are going to offer you a loan is how high your business credit score is. So it makes sense to try to get that score as high as you can before you apply for a loan.
You won’t be able to turn a bad score around over night, but you may be able to boost your score bit by bit.
Any farmer will tell you not to count your chickens before they hatch. The same goes for small business funding. You shouldn’t work under the assumption that you’re going to get a certain amount of money with a loan. Even if you’ve been prequalified, that loan may not end up happening when you actually apply for it.
Larger loans can take a long time to process, and it can be months before the funding is actually in your account. That’s why it’s best to be a little cautious when planning the future of your business around a loan.
You shouldn’t rely on what someone else says you can afford – especially when they stand to make money based on how much they lend to you. Do the math and find out how much you think you can afford.
You can start by figuring out the lowest loan amount you need. Then you can avoid borrowing more than you need. When you over borrow, you may end up paying more fees and interest than you would have otherwise paid.
If you don’t feel comfortable making this kind of decision on your own, then that’s a pretty good sign that it’s time to bring in an accountant. Have them look over your finances and let you know what kind of loan situation would work best for your company. Who knows, they may even tell you that you don’t need a loan. You might just need to move your money around in a creative way. You’ll never know for sure until you have a professional look over your numbers.
Sometimes you need small business funding to keep your company afloat. In these situations, you may tempted to sign a loan agreement that’s not good for your business.
If the rates are too high for your business to afford, then don’t get the loan. Keep looking for a rate you’re comfortable with. Even if it’s an emergency, you don’t want to jump into a loan that’s going to be bad for business.
We might be a little biased here, but we think a great way to request business financing is through Lendza.com. You can use our funding request form to get started. The two-step form is very easy to fill out and submit, and you’ll know within minutes if we were able to find you a funding source.
You don’t even need to be pre-qualified to use our site. And remember, our loan pairing service is free to use and won’t affect your credit score. So go ahead and see if we can find you a funding provider right here.