Many entrepreneurs experience cash flow in the early stages of launching and running their businesses. In fact, poor cash flow is the number one reason why small businesses fail. If your business is struggling to survive, applying for a loan might be the solution. But first, it’s important to think this decision through carefully. Here are the questions you need to ask yourself before reaching out to a lender:
How Much Can I Afford to Spend On Monthly Payments?
Don’t take out a loan without analyzing your financial situation to determine how much you can afford to spend on monthly payments. Taking the time to estimate your maximum monthly payments will ensure that you don’t make the mistake of borrowing more than you can afford to repay.
Make sure you share this number with your lender so they know your personal limits. This way, the lender will not pressure you to borrow more than you think you can afford.
Will Cash Solve My Business Problems?
Believe it or not, more cash is not always the solution to business problems. Think about your business goals, and more importantly, whether or not cash will help you achieve these goals. For example, if you need to purchase more inventory to sell to your customers, an influx of cash might be the answer. But if your business is failing due to lack of demand, cash won’t keep your business alive.
Do I Have Personal Property To Use As Collateral?
There are two types of loans: secured and unsecured. The former is supported by collateral, whereas the latter is not. For example, one type of secured loan is a car title loan. To obtain this type of loan, the borrower must use the title to their vehicle as collateral. Lenders typically won’t run credit checks on borrowers who are taking out secured loans, so this is a great option for people with low credit scores. If you’re in this situation, think about whether or not you are willing to use your personal property as collateral to obtain a loan and save your business.
How Long Will It Take to Apply For A Loan?
In the business world, time is money. If your business is running out of cash, you may need to obtain a loan right away to keep your doors open. Because of this, it’s important to find out how long the approval process will take before you start applying for a loan. Some lenders tend to move faster than others, so reach out to colleagues for recommendations.
It’s also wise to start gathering the documents you will need to apply for a loan, such as your income statements, tax returns, and articles of incorporation. Preparing these documents will speed up the approval process and help you secure the cash you need as quickly as possible.
At this point, you should have a better idea of whether or not a loan is the solution to your business’s financial troubles. Let the answers to these questions help you determine the best way to move your business forward.