You’ll encounter a lot of problems running the business. Stress, low sales, economic downturns, and high inflation rates will surely affect your bottom line. When these things start turning your dream into a financial nightmare, you might have to take out a loan from a reliable money lender to save up your business.
Here are important things to consider and think about before scheduling an appointment with a potential lender:
Make Sure You Have a Business Plan
You should have one by now. It would be best if this includes an analysis of your target market, behavior patterns of your customers, and feedback from your suppliers and employees.
However, one important part of the plan that you should not have overlooked is a contingency plan or a business continuity plan. This will be your guide when things do not go your way.
Having a plan on how to go back to the desired financial state of your business and prevent bankruptcy is a good way to show your potential lenders that you are not just mindlessly trying to keep your business afloat. It will also assure them that you are capable of getting out of your current situation.
Keep Your Accounts In Order
If you have been in the business for a couple of years, you should have a financial statement on file. This will keep you informed of what is happening in your business financially. It will also guide you in making marketing decisions.
Sometimes, businesses fail because of mismanaged inventories or failure to adapt to the changing market environment. If you have easy access to your financial files, you will be able to see your big expenses, where most of your income is coming from and even bad debts, if there are any. With this information, you can calibrate your actions and make sure you are exerting effort and spending time on what matters most.
Know Your Credit Score
This is crucial if your business is a sole proprietorship. Whatever your financial decisions and behavior were in the past will affect the chances of your loan being approved. If you have set up a corporation for your business, your credit score will still matter. It will show potential lenders how you manage your money and your debts. It will inform them of the level of risk they need to take on if they approve your loan application.
Your credit score can also affect your loan terms and conditions. It can mean approval of a long-term loan. If you have a good credit score you can even try to negotiate the interest rate for your loan.
Plan Your Repayment
Loan approval and release of loan proceeds does not mean you are automatically out of the woods. Prepare a detailed accounting of your income and expenses so you can better formulate your payment strategy. You will be able to see where to cut down on costs and where your loan proceeds should go.
Depending on your cash flow and projected income, you can explore asking your lender for a balloon payment or if you can pay more than what is required for a month to make up for what you cannot pay for a certain month. Make sure to ask if there will be early payment penalties and charges. Do not just readily accept the payment schedule given by the lender. Evaluate what will work best for you. After all, the goal is to be able to pay the debt on time.
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Loan Amount and Loan Term
How much you need to borrow and for how long you need to pay will be affected by your plan to save your business. Make sure to come up with a comprehensive plan that you can follow. Keep in mind that the amount of the loan and the term affects interest rates and charges.
Do you really need that particular amount? Can you really manage to pay on the maturity date? Be ruthless in your self-assessment so you will not be blindsided later on by surprise terms and charges.
Conclusion
When your business starts hemorrhaging money and you find it difficult to keep it’s doors open, it would be tempting to jump the gun and quickly apply for a loan. However, this will rob you of the opportunity to evaluate your situation and what got you there. Self-reflection should be a regular habit for entrepreneurs. It will save you from a lot of trouble later on.
