Money isn’t as cheap as it used to be. Rising interest rates have made borrowing more difficult (and more costly). As a result, you need to know everything you can about the process before taking out a loan.
Of course, you need resources to expand your business. To maximize your options, you have several possibilities. Loans represent a popular way to get the capital you need to reach your business goals. In fact, more than four out of 10 small businesses (43%) will ask for a loan in a given year.
Still, knowledge will help you make the best long-term decision possible. As such, here’s what you should know before taking out a loan:
Tidbits and Reminders Before Taking Out a Loan
Perfect Your Business Plan
Borrowing money involves selling lenders on the value of your business. The more detailed and structured you can be in your presentation, the more persuasive you will be. To maximize your chances of securing a loan, make your business plan as convincing as possible.
Know Your Credit Score (Both Business and Personal)
Going into the process, know where you stand in the lending market. That starts with your credit score. This is a baseline test lenders will use when they review your application. They will look at your business and, for small operations and startups especially, at your personal borrowing history.
Be Ready to Share Financial Details
Loan shopping is not a good time to get shy about the details of your business. Lenders will want open access to your financial information. As such, be prepared to open your books and share data about your firm’s health.
Understand the Ongoing Costs
Getting a loan isn’t a one-time event. Rather, you are adding an ongoing expense to your organization. Make sure you fully appreciate how a long-term obligation will impact your cost base.
Realize the Impact on Your Balance Sheet
By adding costs, a loan can impact your bottom line. However, it has other financial effects as well. Specifically, these obligations show up on your balance sheet, another area of long-term consequence you should consider ahead of time.
Take Risks into Account
It’s easy to imagine the value of extra cash. Close your eyes, and you can picture everything you can accomplish with a loan. However, have you fully appreciated the risk?
To assess the situation reasonably, you must look at the potential pitfalls. Don’t become so blinded by potential upsides that you fail to recognize possible worst-case scenarios.
Get the Details Right
Even if you decide to pursue a loan, that only represents the first in a long series of choices. You also need to determine which loan makes the most sense for you. Here are a few steps you can take:
- Research the market
- Conduct your due diligence
- Shop around for the ideal lender
- Negotiate the best terms you can find
Prepare for Paperwork (Lots of It)
The loan process can become a pain. There are often multiple stages, each with excruciating paperwork. Lenders often take steps to minimize the burden, including taking much of the activity online. However, you should prepare for an arduous, detail-oriented process.
Research Other Financing Options
Loans aren’t the only way to obtain funds. Before you commit to anything, make sure you understand your alternatives. A strong financing partner, like Frontline Funding, will give you the flexible program you need to maximize your company’s resources.
Want to Know What Option is Best for Your Organization?
Contact Frontline Funding to get the cash you need to thrive.