Getting a newly formed business moving in the right direction takes a lot of careful, smart planning. Once your efforts have been met with some initial measure of success, generating profits should be driving you to pursue expansion. With limited resources, you have to evaluate your available options with a high degree of scrutiny while also presenting your funding applications competitively. Here are a few considerations to help you seek out loans and utilize funds strategically.
Be Fully Transparent About Finances
Lenders want total reassurance that they are getting a clear and accurate picture of your fiscal management practices and current financial position. You need to incorporate extensive detail about outstanding obligations, incoming revenue, and ongoing expenses. Any mistakes or omissions could make a funding application a nonstarter.
A lot of the mistakes that tarnish applications that would otherwise have promise are unintentional. Review your materials carefully to avoid errors or omissions. If any items in your financial statements do not add up or readily make sense to you, they definitely will nut pass muster with prospective funders. Do not dismiss complex or incomplete calculations as being above your level of financial literacy. If you engage a professional accounting services provider, it may be a good idea to sit down with your accountant as you are working on compiling materials for your application.
Build Up Business Credit
A formidable credit score is one of the most crucial elements to qualifying for local business loans. Having a certain score may be a preliminary measure of eligibility before the best lenders will consider your request for funding. Furthermore, your company’s creditworthiness may impact a lender’s requirements for collateral. The right score will open the doors to the best lenders, rates, and growth opportunities.
To keep your score steadily moving upwards, be consistent about paying bills on time. Review all of the active tradelines on your detailed credit report, and make sure that you are keeping up with timely payments towards all of them. Maintain a healthy credit-utilization ratio by using no more than thirty percent of your total available credit at any given time. Requesting limit increases may be a fast and easy way to lower utilization. Of course, for this to work, you cannot draw from any of the additional balance that you have tacked onto your tradelines.
Remember that taking out a loan is probably going to weigh down your business credit score more than a new line of credit. However, making consistent, timely payments towards the principal balance of a loan is going to advance your long-term credit building goals. Holding up your end of a lending or financing agreement over time is the best way to demonstrate your company’s creditworthiness. That will strengthen your ability to attain additional funding in the future as you continue growing your business.
Collateralize Assets Discerningly
The collateral that you are willing to assign to a loan or financing agreement could weigh heavily on how lenders treat your application. The mere fact that you have accumulated assets is a testament to your business’ solvency and smart use of resources, but it is imperative to bear in mind that collateral is more than just a superficial application feature. The assets that you collateralize are likely to represent a large percentage of your company’s aggregate worth. Moreover, many assets such as real property, high-value equipment, or vehicles may be essential to your day-to-day operations. Failing to meet payment obligations could compromise your assets and jeopardize your ability to operate.
Be conscientious about moderating the total value of collateral as well as the types of collateral that you use. Never collateralize an asset unless you are certain about your ability to make timely payments. When possible, use nonessential assets such as accounts receivable rather than assets that you simply cannot function without.
To make lending opportunities work for you, be judicious about financial risk management. Plan thoroughly, stay organized, and show lenders that you are capable of handling your finances resourcefully.
