Many of my small business clients ask me about getting a small business loan to expand their businesses. In many cases they ask me because they’re considering hiring our Digital Marketing Agency, Prediq Media, to help them create a lead generation campaign that will drive phone and web leads to their team. Having owned and operated businesses for 17 years I’ve had my share of loans and credit lines to help grow the company. My advice to my small business clients are to create a list of questions then research the best loan products in the market today. Here are some questions you should be asking before considering to apply for a business loan.
How’s the health of your business? What is your personal credit score? Do you pay your vendors on time? Do you have a mortgage? Do you plan on putting collateral? Has your business had a loss in the past 3 years? Have you applied a commercial bank or credit union? When do you need the loan? Have you applied through the SBA?
These are just a few of the dozens of questions we will ask you when you apply for the business loan. We will also request recent tax returns and 3 months of banking statements. Even if your business is not in need of a loan it’s a good idea to have the capital available in the event you want to hire new people, buy equipment, penetrate new markets and more. When a business goes through tough times it needs cash to stay afloat. If that cash is not available then a business could be put in jeopardy. This is no doubt the main reason small businesses close their doors. It’s not for a lack of demand, quality or anything else. It’s typically because a business loses a big client or the economy slows down. During that period of time a business must have positive cash flow and capital set aside to weather the slow-down in business.
Efficiency and security is should be very important to business owners. There are many types of business loans in the market today. Especially since the hard money lenders and crowd sourcing websites entered the market. However, the most common types of business loans are Long Term, Short Term, Line of Credit & Alternative Financing. Here’s a quick summary of what these loans are usually used for.
Long Term Loan – Business expansion, acquisition, refinancing or working capital
Short Term Loan – build up inventory, cash for accounts payable, or for small projects under $100,000
Line of Credit – You use the funds as needed rather than getting a lump sum. A lot like a credit card. Interest rates can be high, so this option is usually used for an emergency or shortfall.
Alternative Financing – cash advances, leasebacks, peer-to-peer loans and crowd funding to name a few. The amount they lend is usually smaller with a higher interest rate.
So whether you’re looking to invest in the infrastructure of your business, increase inventory or keep operations running there’s no doubt there’s a product for your business. The main thing is you need to do your research. Call companies and spend time studying the information posted on our website. I would also encourage you to compare our product to what’s available locally. Find a local community bank or credit union and talk to the loan officer to get an understanding of how they work. You should also look the SBA Small Business Administration website to consider that as an alternative. The drawback there is that it’s a lengthy process since these are loans secured by the government.
Once you’ve determined what type of loan you think is right for your business then develop a plan to maximize your chances of securing the financing. Here are some helpful tips on securing financing for your business.
· Clearly outline how funds will be used
· Provide all financial statements including audits
· Understand your credit score and your assets and liabilities
· Find out the value of your business
· Open communication with the lender