Getting the right financing for a business or a project is important. A good loan with suitable terms and affordable APR can help your business reach its fullest potential. It is even more important to get the right financing since the market is growing at a steady rate. There are too many opportunities to benefit from; extra leverage may be just what you need to take your business to the next level.
Despite the growing number of financing options available on the market, some businesses – and business owners – still struggle to get a loan. One of the best pieces of advice I’ve been given over the years is to think like a lender before applying for a business loan. We’re going to talk about how to think like a lender and get a business loan in this article.
Know your metrics
There are several important factors that are taken into consideration when a lender is considering your business for a loan. At the top of that list, there’s your annual revenue. How much your business actually made last year – and during the months leading to your loan application – will greatly affect your loan application, simply because it shows whether you have the capability to repay the loan.
You also want to keep your average bank balance in check. An average balance of $5,000 is ideal according to experts. Of course, the lender will also check your credit score and past credit history, along with the age of the business itself. These factors will determine if you qualify for certain loans.
Borrow what you need
There are a lot of financing options available on the market, from short-term loans to invoice financing and business credit cards. Just because you can apply for more loans, doesn’t mean you should. In fact, the biggest mistake you can make as a small business owner is to borrow more than what you actually need.
If the goal is to have a reserve of cash that you can use when necessary, the best course of action is to set up a business line of credit. This way, you’re not paying interest and other charges on the portion of the loan you’re not using.
For project-based financing, stick with invoice financing or short-term loans. They are much cheaper than long-term loans – including secured loans – and are more manageable. They can also help you boost your credit score if you continue to repay the loan on time, opening up more financing options for future needs.
Know which loan to use
Last but not least, stick to one loan application at a time, even when your business really needs the extra cash. It is not uncommon for business owners to apply for several loans at one time, expecting at least one to get approved. This is a clear sign of irresponsibility and may result in all of the applications being denied.
Instead of applying for multiple loans, focus your energy on finding the perfect loan to get. As mentioned before, tools such as Fundera can help you search and compare the available financing options based on specific parameters such as the amount you need or the term of the loan. You can compare quotes from multiple potential lenders and understand the requirements of the loans better.
At the end of this process, you should have the perfect financing option selected. Tools like Fundera don’t just help you find a great deal on financing, they also allow you to increase your chances of getting approved for the loan. All you have to do now is submit your business loan application and wait for the review process to be completed to get the financing you need.