Subprime lending was once a normal activity. However, a market crash between 2007 and 2008 changed all this. Banks enforced strict requirements to avoid a high rate of defaults and to protect the economy from a downfall.
Many businesses opt for bootstrapping either because they fear piling debts or they don’t know about other existing options. Bootstrapping is an excellent way of financing your business, but there are other options you can utilize. Loans can be a great alternative.
Nevertheless, lenders take great care in going through loan applications. This means there are many factors which will determine whether your business is approved for a loan or not. You need to prepare and plan in order to get the best shot for obtaining financing.
The following are some of the area’s lenders will be interested in before approving your loan application and how obtaining a loan can accelerate growth.
Your Credit Score
As a startup, good credit is vital if you have dreams of securing a loan from any financial institution, you can try nation 21 loans for quickly find a startup lender. On the other hand, building a stellar record can be a difficult task. Often, you’re just starting to build your own credit, which means you may not have a long history.
How, then do you convince a financial institution to provide startup funds? Use your personal credit card. This is your best shot at rebuilding or building your credit for a chance at getting a loan.
There are two different types of credit cards. Secured and unsecured. With an unsecured credit card, you’ll get approval from the lender on a certain limit which you can afford to spend over a certain period. After the period expires, you’ll have to pay off what you spent. As you can see, this type of credit card is more like a loan. In contrast, a secured credit card requires the consumer to pay a deposit as security to get an approval. This type of credit is good if you intend on building or repairing your credit.
Of course, you’ll need some kind of income to make your loan payments. On top of that, the lender will want to know how much debt you already owe and what your income can cover. This is a major factor when applying for a loan, therefore, you want to put all your finances in order to make sure you convince the lender.
In addition, you’ll be asked to provide proof of your claims. This includes bank statements, tax forms and pay stubs to prove your income. What’s more, they’ll also analyze your debt-to-income ratio. If it’s too high, then you pose a high risk to the lender.
Your Social Media Presence
Almost every business has made a shift to digital platforms. These platforms have turned into gold mines for businesses and thanks to data mining, companies can now find whatever they want about you from such sites.
Your profile shows a lot about responsibility and this what lending companies will be after the moment you apply for a loan. Chances are, they’ll pay for information or they’ll go through your profile themselves. This doesn’t mean all lenders do this, but for the sake of your loan approval, make sure your business looks as professional as possible on all social media platforms.
Why You Need a Loan to Accelerate Growth
Physical Location is Too Small
When starting out, you might have needed a small space for your operations. However, the time has gone by and your business has outgrown your initial space. This means it is time to move out and look for a bigger location.
A bigger location means you need funds to finance the rent as well as the move to the new location. A loan is your best option at this point but be sure the new location will bring in the required revenue to finance operations.
You Need New Equipment
This is a no-brainer when it comes to why you need a loan to accelerate growth though some business owners see some pitfalls as well. For example, you might need some extra machines to help meet customer demands which, in turn, will boost revenue.
A plus to acquiring new equipment is that you can use it in the future as collateral to take out another loan. However, make sure you actually need whatever equipment you intend to buy.
You Need to Purchase Inventory
Inventory takes up a huge percentage of any businesses expenses. Sometimes you might run out of stock, yet the demand for your product is high. Also, the return on investment might take some time, thus creating a gap in revenue, making it hard to buy more inventory.
Loans can help you out of such a situation. They will enable you to buy the inventory and wait to make the profit later.
Knowing what your lender will look for when applying for a loan is crucial to improve your chances of securing a loan. On top of that, always make it a habit of paying loans on time to improve your credit history.
Loan applications can be quite nerve-wracking. However, these loans will help you to expand your business, employ new staff, and buy extra inventory. All these things will increase productivity.
Most of the time, fear holds a lot of people back, but you won’t realize your dreams of accelerating growth without some funding. Therefore, don’t be afraid, take a bold step and apply for a loan to take your business to the next level.