It takes money to make money, which means raising capital for your business. One way to do this is taking out a business loan. The following are a few questions the lending professionals at Lantern Credit recommend small business owners ask before taking out a business loan.
What Do I Need the Extra Capital for?
This means critically evaluating your business. Remember, you are going to pay back the money you are borrowing with interest, so that’s money your business is losing. What would happen to your business if you didn’t get the capital? Do you need this cash injection to achieve your goals or in order for your business to survive?
Before applying for a loan, evaluate the following things:
- Your Company’s Goals– Write your long-term and short-term goals and the funding needed to accomplish them.
- Examine Your Financial Pain Points– Are you using this loan to temporarily plug a hole in your business as opposed to fixing it? If so, you run the risk of your business having the same hole along with extra debt
- Short-Term Financial Needs– What’s needed to keep your business running on a daily, weekly, or monthly basis? Profit and cash flow in the short term do not always correlate.
- Long-Term Financial Needs– If you are considering a loan that will take over six months to pay back, ask yourself, how is the loan part of my strategic growth plan? How will it make my business more efficient?
How Much Money Am I Looking for?
Answering this question means determining how much is required to resolve the problem at hand and determining how much your business can realistically afford. The leading experts at Lantern Credit recommend a realistic approach to borrowing money.
Focus on the disbursement of funds, in other words, how the money received from the loan will be spent. This will give you a basic idea of how much you should ask your prospective lender for. Understandably, you want to get in a cash positive situation as this will allow your business to grow in a healthy way.
It’s good to evaluate what direction you will channel the borrowed funds in. Will they be used to hire new talent, open new locations, or increase inventory? The answers to these questions should align with your long-term plans.
Finally, don’t bite off more than you can chew. Stick to a borrowing limit that is reasonable. If you need $50,000 to transition into the next phase of growth, only borrow that much. It doesn’t matter if you qualify for a $200,000 loan.
How Quickly Do I Need Funds?
The answer to this question ties back to why you need the funds. If your business is looking at small business loans because it wants to do a remodel or a long-term project, it might be okay for you to wait several weeks to get a loan approval.
However, if you have a new customer contract, and in order to win the contract and fulfill the contract you need capital today, waiting for days or weeks for a loan could be too long. It could mean losing the contract entirely. Many who have received small business loans said that the listed speed of funding was the number one reason they chose the loan they did. You can compare lenders and funding options with a comparison marketplace site like Lantern Credit which matches your business needs and qualifications with various lenders for your consideration.
Before you are ready to talk to a lender, you should know what your business and personal credit profile looks like. The more you know about why you will use the funds, the more you know about the amount of money you need and how quickly you need the funds, the better equipped you will be to find the right lender and get a loan that is a good fit for your business now and that will help your business continue to thrive.