As you may have already noticed, getting a business off the ground is not easy. One of the many challenges small businesses must face is a lack of capital. Some may need money to cover operating expenses or to make major expenditures. Either way, there will be a time in the life of your business where you will need to seek financing. But it has to be at the right time and for the right reasons. Here are some of the questions you should ask yourself before seeking financing for your small business.
How Good is My Credit?
First, you will need to look at your credit situation. If you don’t know what your business credit is, then it’s probably poor.
If you didn’t start establishing your business credit, you will need to get your DUNS number and purchase D&B’s credit builder product. Experian and Equifax also allow you to check your credit report for $39.95 and $99.95 respectively.
Note that lenders will look at your personal credit score as well if you’re a new business, even if it’s for a business loan. While it’s not the best measure of a business’s ability to repay, it still says something about your trustworthiness, so make sure that your house is in order before applying.
Do I Need Financing?
The first thing you have to do is look at your reasons for taking a loan. These cannot be superficial. If you need money to buy new furniture for your office, for instance, then don’t expect lenders to see this with a kind eye.
Financial institutions will prefer to extend money for expenses that could potentially lead to more revenue. This is why they are much more likely to approve a loan for something like advertising, for instance. So, make sure that it’s for an immediate and important need if you want a realistic chance at getting financing.
What Are the Options Out There?
Once you’ve identified your needs, look at the different available options. Getting a long-term loan is not always the best decision, and these are not always the easiest to qualify for.
If you need something to cover cash flow issues, then things like invoice financing should be considered. But, if you want to do something like purchase equipment and only need a few months to repay, bridge loans could be a better solution.
Understanding the basics of bridge loans is important before you go for this option, however. Simply put, bridge loans are small or medium short-term loans. These are perfect if you need to make immediate expenses, but also if you’re having difficulty getting accepted for other types of loans.
If you still can’t get those, you might have to start looking at collateral loans but only if you have something of value to offer. This can be things like property or equipment, but also inventory in certain cases, so don’t automatically assume you wouldn’t be eligible.
These are all important questions you’ll need to answer before getting a small business loan. This will allow you to find the best financing for you and avoid getting into debt trouble.
Boris Dzhingarov is digital nomad travelling the world. He is the CEO of ESBO ltd.