Many business minds dread the sound of the word ‘loan.’ The reason for this isn’t farfetched –debt.
Indeed, no one likes the idea of debt, but business loans can be essential when you’re launching a startup or searching for additional funds to expand an existing business.
So, you need not dread debt; instead, you need to view business loans as tools that can help take your business to the next level.
However, first things first, before we discuss loan management schemes and how they can help in handling small business loans, it is important to first discuss some factors that could hinder an entrepreneur from getting a small business loan.
After all, it is only after you’ve secured a loan that you can start to think about repayment.
Poor Credit History
Credit history is the tool lenders use to determine a borrower’s credibility.
If, for instance, you’ve started getting calls or letters from the Moorcroft group (a debt recovery company that contacts individuals or businesses when they owe money) or your credit report shows that you’ve defaulted on your past loan obligation, chances are you might be rejected when you apply for a loan.
Many entrepreneurs have had their loan applications rejected in the past because of their poor credit history.
Hence, if you don’t want to suffer the same fate, you need to make sure that your credit report is in good shape, and if already tarnished, be sure to repair your credit credibility before applying for a loan.
Limited Cash Flow
Cash flow is the amount of money you have at hand to repay a loan. And it is usually the first thing lenders consider when gauging your business’ financial health.
If your business is found to have insufficient cash flow, lenders are most likely not going to give you the funds you need. Therefore, cash flow should be the first thing you worry about when determining if you can afford a loan.
Lack of a solid business plan
It is not uncommon for many small businesses not to have a formal business plan or any plan whatsoever.
Well, the bitter truth is that no one will be interested in giving you a loan to start a business you don’t even have a detailed plan for. The only way around this is to put in the time and effort and craft a comprehensive business plan before walking into a lender’s office.
Failure to shop around
Finding a lender can feel so daunting that it might be tempting to sign up with the first one that comes along. But blindly pursuing one loan provider without exploring your other options can be a mistake.
Entrepreneurs should take the time to research a range of traditional and alternative lenders available to them because while it is very important to obtain funds, it is even more crucial to find the right lender.
After all, you wouldn’t want to take loans from an inconsiderate lender who wouldn’t offer you an easy ground in case you ever need debt help.
Other alternatives to traditional lenders include online lending platforms, peer-to-peer lending sites, and tapping into your network of friends and relatives.
Most of the application process for a business loan is methodical, directed by the orderly arrangement of concrete documentation that it’s so easy to forget there is an innately emotional component to this process as well.
Too many business owners simply don’t demonstrate why they, rather than someone else, are a good candidate for a loan. They approach lenders with an apathetic attitude.
In addition to making a sound business case for why you should qualify for a loan, you need to exude enthusiasm and faith in your venture to draw in the lender and makes them a believer.
To do this, you must tell a story about your business that the lender finds compelling.
Failure to seek expert advice
When it comes to making financial decisions for your business, lenders want to see that you’ve sought guidance from knowledgeable advisors.
While accountants can be an important source of advice for small business owners, business owners get financial advice from business networking groups and conduct research on the websites of the leading alternative funders.
Since many have detailed resource sections for small businesses about the many kinds of available capital and the best ways to prepare for funding.
Too many loan applications
Some business owners assume they can cover all their bases by applying for multiple loans at one time. This way, they can pick and choose from a range of potential offers.
However, opening too many loan applications at once can be a red flag for credit bureaus.
By and large, while these may not be the only set of factors capable of keeping a business owner from getting a small business loan, they are still very vital to your chances of securing a loan.
Conclusively, while it is very important for you, as a business owner, to seek out debt financing for your business, it’s even more vital that you seek out advice on how to write off debt easily, so that you can have the proper foreknowledge of how to handle debt in case of any future repayment difficulty.
Uday Tank has been working with writing challenged clients for several years. His educational background in family science and journalism has given him a broad base from which to approach many topics. He especially enjoys writing content after researching and analyzing different resources whether they are books, articles or online stuff.