Running a business often means assessing your needs for the future. If you’re looking to expand or pivot, you may need to add another round of business financing to help see your vision through. However, securing another business loan may take some planning on your part. Read our guide to learn how to prepare for your next round of business financing.
Assess Your Needs
No matter if you’re looking for a larger lump sum or want access to ongoing capital, it’s important to know roughly how much business financing you need. Business lenders usually ask about the use(s) for business financing on loan applications, so you’ll want to estimate roughly how much it costs to achieve your goal. Take some time to work out your business funding needs, whether you want a backup option for everyday expenses or a larger term loan to help pay for equipment, renovations or expansion.
Additionally, the funding timeline is another important area to consider when researching business funding options. Brick-and-mortar lenders, such as banks and credit unions, have lengthier application and funding timelines. On the other hand, online lenders like OnDeck work hard to make both processes much faster. If your financing needs are more urgent, you may want to use a business lender with a shorter turnaround time.
Watch Your Credit
One of the most important aspects on a business loan application is your credit health. Your business and personal credit scores reflect your creditworthiness, or the likelihood of repayment based on your recorded financial history. Higher credit scores can help improve your chances of getting approved for a loan.
If you have low to moderate credit scores, it would be a good idea to work on your credit score before applying for a loan. Paying bills on time and in full can help you raise your business and personal credit scores. Additionally, aim to keep your revolving credit usage under 30% of your total credit limit, if applicable.
Find the Right Financing Type
There are several different types of business credit, each with their own unique benefits. Finding the best type of financing for your needs can help you make the most out of your next business loan. Here are a few of the most common business funding options:
- Term loan: A term loan is issued in one lump sum and is repaid in installments over time. Sometimes referred to as a small business loan, this financing option is available from a wide variety of sources, including banks, credit unions, online lenders and other business creditors.
- Line of credit: A business line of credit is a revolving funding option that provides ongoing access to funding up to your credit limit. As you repay the balance, that amount is available again for usage. Business lines of credit are available from sources like banks, credit unions and online lenders.
- Business credit card: A business credit card is another example of a revolving funding option that provides access up to the account credit limit. As the balance is repaid, borrowers can access the capital again. You can apply for a business credit card through banks, credit card providers, credit unions and other business lenders.
Research the Loan Qualifications
Once you have a good idea of the amount and type of financing you need, it’s a good idea to research loan qualifications for your preferred business loan. Although loan qualifications can vary by lender and/or financing type, they generally cover the same criteria:
- Time in business: A minimum amount of time in business is often required in order to qualify for a business loan.
- Industry: Some lenders may restrict loans to companies in certain industries. Before you apply for a loan, ensure that your business qualifies for any industry limitations set by individual lenders.
- Annual revenue: Another common qualification that business lenders set is a minimum annual revenue. If your company does not meet this funding requirement, consider another lender, a smaller principal amount or a different type of business loan.
- Credit scores: Both your personal and business credit scores can come into play when you apply for a business loan.