SCORE, in collaboration with SCORE Business Ondek, has recently published some tips on microfinance loans. The main points of that article are as follows.
Owners of small businesses face many challenges when applying for a loan, but sometimes, the biggest challenge is their own business. If you wait until you are in a hurry to find a lender, you have a very long wait. The best time to borrow is when you have a strategic plan for the money and you are not in critical need. Taking care of your finances will help you to reduce the stress of the loan process, increase your chances of success, and ensure that you can repay the loan easily.
While it may be difficult to predict every financial need in the next 12 or 24 months, it will generally give you a clear idea of what you need to take an active approach to business planning. For example, do you want to buy new equipment, hire more staff, do pillar work, or expand your business? All of these plans can be made easier by borrowing capital. Once you know the purpose of the loan, you can consider how much money you need and what loan terms are best for you.
In today’s economy, lenders are becoming more cautious and weighing more heavily on the business owner’s cash flow, time in the business, and credit history. Pre-planning gives you time to honestly assess your financial situation to determine if your business is eligible for the loan you need. Your current financial situation directly affects the financial options available to you. A realistic assessment of your situation will help you to zero in on the creditors who can approve your loan application. Many lenders want to access your Commercial Bank account directly to ensure you can handle payments.
After reviewing your business, borrowing is pointless, strategic approach allows you to improve plans, extend large startups or stop expansion in a short period of time, which will save your business a little more success in the future.
Sometimes an accident occurs without warning, and your business needs financial support to continue operating or get back on its feet. Ideally, you plan for this opportunity, as well as, securing your business from cybercrime, natural disasters and business disruption. Building an emergency fund can help you avoid surprises.
But if you do not take these steps, you will end up in debt. Even in difficult times, lenders’ main concern is your ability to repay your loan. You want to see proof that you have enough cash flow to repay the loan and that you have a well-thought-out plan to use the loan money. Will the money eventually improve your business or keep it alive until it becomes inevitable?
Risks make finances more difficult; In times of crisis, when many business owners want money, it can take a long time to get a loan from your bank. If you can’t wait, lending sites related to lenders can help you get the money you need. Make sure you fully understand the terms of the loan and process the numbers to make sure you can manage payments even in the worst of sales conditions.
The most successful business owners look at finance in the same way they look at other business tools. Finance should not be used figuratively for “dice rolling,” but as a way to make strategic investments that facilitate growth and increase business value.
– Rex Winter is a retired agricultural industry entrepreneur and volunteer consultant with SCORE’s Tip of the Mitt chapter. Current and future small business operators can request SCORE Free and Confidential Advice at 231-347-4150 in Pittsky or 989-731-0287.