Are you planning on getting a small business loan? Loans inject additional financing into your growing company. It provides you with resources to hire new employees, develop a new product, market current products or open a new branch. You might think you’re ready for the recurring payments of a loan.
Before making a decision, you need an answer to the question, is your small business ready to take on a loan?
Know Your Options
You have the option to get a short-term loan or a long-term one. Both have their own pros and cons, but it will depend on your small business’ needs and future plans. Short-term debt often has a higher interest rate but fewer requirements. This provides you with financing to meet the immediate needs of your company.
A long-term loan is ideal, if you plan to keep your business for many years. The payment terms and conditions are often negotiable because of the length of the contract. A creditor wants to see you succeed because of their investment in your business, but they also want you to pay on time. A long-term loan requires more documents and security. Creditors would want to see your cash flow, profit and other information about your business’ financial health.
Assess Your Credit Rating
Getting a small business loan often requires a good credit score. Your potential lender wants to know if you’re capable of paying the loan they give you. Assess your small business’ transactions and determine if you have regularly paid dues on time. Defaulting and delayed payments have a negative effect on your rating. A creditor might think twice or increase the interest rate when they see either one.
You also have to consider your company’s cash flow. Are you struggling to pay for immediate financial obligations? You need to know how much resources you’ll use for current payables and the loan so that both won’t constrain your company’s growth.
Understand Your Company’s Financial Health
Review your company’s updated accounting books. This provides you with vital information and insights about the direction of your company. It also enables you to assess the readiness of your small business to get a loan. Look at sales records, revenue, cash flow and working capital just to name a few. These provide you with a glimpse of how financially healthy your business is. You can also use financial ratios to assess your small business.
As the owner, you make the decision on whether to get a loan or not. Get all the information you can so that you can put your small business on a feasible growth track. We at Robookkeeper can provide you with small business accounting services to update your books within your budget.
