With enough working capital, small business managers can cover operation costs. But often times due to poor decisions or miscalculations businesses are unable to generate enough profit to keep the system running. One can try to reduce expenses or get vendors with long-term repayments terms. If none of these tricks help, then your last resort is a small business loan. Even if you have a bad credit score, there is a working capital loan to cover routine expenses.
As the market is growing day by day, you must come across a variety of custom-tailored business loans. For example:
- Business Lines of Credit
- Invoice Financing
- Equipment Financing
- Merchant Cash Advance
If you go to the traditional lender and apply for any of the above loans with a bad credit score, you have a slim chance of loan approval. Alternative lenders, on the other hand, are willing to look over a bad credit score if you are excelling in other departments. Before applying for a loan, one must consider some options to get the best deal.
- Need for a business loan.
For starters, you should apply for a business loan when you have exhausted every other option. Don’t just apply because you like the sound of it. Consider all the consequences and then, if it seems that survival of your business is crucial with external funding, apply right away. Applying for a loan just because you think your business won’t be able to make enough sales in the coming season is unwise. However, if you need to repair a machine, expand your business, hire more staff, or purchase inventory, you have a valid reason to apply for a small business loan.
- No foreclosures or bankruptcies
Before you apply for a business loan make sure the lender isn’t selling off your assets because you fail to make repayments on time. Declaring a bankruptcy won’t improve your chances of loan approval. On the other hand, the lender might offer you a loan if you convince him that you have kept the debt to a minimum after bankruptcy. A lender might need some evidence to trust you, so to support your claim you must show previous payment documents such as rent payment and car payment.
- A concrete business plan
If you are going to the lender for a loan, having a concrete business plan! A lender is interested in your plan of using a loan appropriately. So, before applying for a loan make sure you have document containing a brief description of your business, a well-conducted research on targeted market and competitors, your management and organization strategy, a detailed list of your products and services, your plan to market and sell your productions, an estimate of a loan money you need, and your financial credentials. These documents present a clear picture of your worthiness and lenders studies it before offering a loan. Lastly, be clear in your mission and vision so you know why you need access to working capital.
- Authentic credit report
A bad credit score doesn’t mean that you are a faulty or incompetent business owner; you can always mend your credit card report by paying the loan on time. Always show authentic credit score report to your potential lender. If a lender finds an intentional fault in your report, the trust is broken. Show the lender that you are willing to improve your credit score. As a business owner and a borrower, you must keep yourself updated with a credit report, sometimes the information that is mentioned on it is not true. To save yourself from rejection due to a false report, keep on checking report once a year. If you are not satisfied with your credit report, you can take the necessary steps to improve your business and credit score.
- Interest rate and APR value
Before signing on the dotted line and sealing the deal, looking at the interest rate and APR value is advised. These rates vary from lender to lender, and they also depend on the types of loan you are considering. More importantly, the rates are finalized by the lender after he has analyzed your financial position. Interest rate and credit score are directly proportional to each other. The lower the credit score, the higher will be the interest rate and the higher the credit score, the lower will be the interest rate. Take a look at the interest rate of some of the business loan option:
- SBA Loan: 7.75% starting rate
- Invoice Financing: 8 – 30%
- Equipment Financing: 8 – 30%
- Merchant Cash Advance: 40 – 150%
- Personal Business Loan: 5.99 – 36%
- Short-term Business Loan: 8.5 – 80%
- Business Lines of Credit: 7 – 36%
Narrow down the list of the business loan to increase your working capital and to bridge the financial gap. Vigilantly compare and analyze the interest rate of potential options, and apply away!
- Loan Repayments
It is better to consider loan repayment before applying for a loan by looking at the cash flow and income growth of the business. Clearing off the debt on time is very important, you must know what is at stake. Failure to make repayment on time will hurt your credit score and in extreme cases lender will take control of your assets.
If you think this is something you can manage easily then, a business loan is one of the best ways to increase the working capital. But if you don’t think you can pay back the loan on time, don’t hurt your financial standing even more! Try to cut down your expenses and hope for the best.
If you have considered these factors and are ready to apply for a loan, head over to our website and apply for a working capital loan to get the adequate capital your business needs. For more tips and updates, you can follow us on Twitter (@Onlinecheck) and Facebook (@Onlinecheck). If you have any query you can call us on a toll-free number at (833) 827-4412, our loyal and keen financial advisor have your back.