Follow this readiness list to identify whether to take the leap on a business loan
The new year is a great time to assess both your and your business’s finances and future goals. However, you’ll first want to do a self-check to determine if your business is ready to make financial moves with a business loan.
Goals, checklist, and financial standing aside, you’ll want to research top business lenders and be absolutely sure you’re prepared to repay a business loan before taking on the responsibility.
In this article, we’ll uncover five signs that your business is ready to apply for a business loan.
1. You have a clear purpose and business plan for the loan
One of the biggest signs that you may be ready to apply for a business loan is knowing exactly why you need the business loan and how you plan to use it. Whether upgrading equipment, expanding your space, or boosting your inventory, having a clear idea of why you need the funds ensures you aren’t just borrowing money but investing in your business’ growth.
A solid business plan that outlines how your business will use the money, how you’ll pay it back, and how the loan will fuel your growth makes lenders more confident in lending you money. Your business plan should include a detailed breakdown of the loan amount, realistic projections for revenue growth, and a timeline for returns and repayments. The more specific your plan is, the stronger your loan application.
2. Your credit score is in good shape
You’ll want to check your credit score to see where you land. While it varies by lender, a good credit score of 680 or higher means you’re in a position to apply for (and be approved for) most business loans and possibly with favorable terms. The higher your score, the better shot you have at the best rates.
Your credit score isn’t the only factor considered by business lenders, though. You’ll likely need to be in business for at least a couple of years and meet annual revenue requirements.
3. Your business has stable cash flow
Typically, when you apply for a business loan, you’ll have to submit financial statements, such as profit and loss statements, balance sheet and cash flow statements, and, in some cases, bank statements. Lenders use these financial documents to gauge your financial standing and prefer to see stable cash flow.
If you’re consistently bringing in enough money to cover expenses comfortably, it’s a good sign you may be financially ready to take on the additional responsibility of a loan. It shows lenders that you can manage regular loan repayments without jeopardizing your day-to-day operations.
4. You’re ready to manage repayments
Being ready to manage repayments means you’ve thought through how to repay your loan according to possible loan terms without straining your finances.
This means setting aside a portion of profits ahead of time or ensuring you have steady enough revenue to cover payments, even if you run into financial slumps. Repaying on time not only protects your credit but also strengthens your business’ financial reputation. This way, you don’t put your business in jeopardy, and you keep the opportunity for future loans open.
How frequent your loan payment will be depends on which type of loan you get. Repayment terms can be monthly, weekly, or even daily.
5. You’ve done your research
You’re ready to apply for a business loan once you’ve done your research comparing multiple lenders and loan types. You want to know which type of loan fits your needs best. For example, if you’re funding new equipment, you may go after an equipment loan, or if you need frequent access to cash, you may be better suited for a business line of credit.
Once you’ve determined the loan type that fits your needs best, compare multiple lenders offering that loan type to see which lender can offer the best loan terms based on your eligibility. Be sure to evaluate each lender’s credibility and customer experience.
A good place to start is a loan marketplace that allows you to submit one application and compare multiple loan offers and terms before you make a final decision.
Bottom line
A business loan could be the boost you need to grow your business in the new year. If you have a clear plan, steady finances, a strategy to handle repayments, and have done your research, you may be ready to take the business loan leap with confidence.
