Getting a business off the ground is no easy feat. It takes blood, sweat, and tears (i.e., time, money, and knowledge – and, let’s be honest, some tears too). You must keep so much in mind: a business plan, growth, time management, revenue, space, and more. Of course, you cannot forget financials either—possibly the most important part of business management. Whether your business is still an idea waiting, or if it’s beginning to take form, or if it has been in operation for some time, you might consider taking out a business loan to support your aspirations. However, it is not always the right time to apply for a business loan, and there is a chance that your application can be denied. Businesses must be bankable and position themselves to be eligible for business loans. So, how do you know when it’s time to get a business loan?
1. You begin with an end in mind!
Starting a business is not just about starting it, but also about keeping it afloat. While a business loan itself could help support your business, it needs more than funds to flourish. You need to have a vision for your company, and it needs to be apparent on your possible loan applications. You should know that you want your business to be around in 5 years and that you want to be an employer. If your business is just starting out, you should have a plan that allows your company to beat the statistics surrounding start-ups. If you have a vision for your business, it makes you much more competitive when applying for business loans.
2. You are done bootstrapping!
Starting a business requires a fair share of resources (est. at least $2,000 for year one). Many business owners start funding their business by bootstrapping. Bootstrapping refers to the phenomenon whereby a business owner uses their own personal capital or revenues from their new company to keep it afloat. While most businesses bootstrap at the beginning, it can be financially and emotionally exhausting to do so. If you are tired of pulling from your own pocket to start your business or keep it afloat, you might want to consider the option of a business loan.
3. Your financials are in order!
Just as a potential lender wants to see your plan for your business, they also want to see you and your business’s financial standing. It allows your potential lender to feel safe entrusting you with their money. Before you apply for a business loan, you should have good personal and/or business credit, as well as clear financial records. Financial records must include a separate business bank account, and financial reports (used by larger banks). It is easier to maintain financial reports by using an accounting software program such as Xero, Freshbooks, or Quickbooks. The reports you need are a Balance Sheet, Profit-and-Loss Statement, Accounts Receivables, and Accounts Payable reports. In addition, you should want to establish a relationship with a financial institution. Whether your business loan comes from a bank, a community development financial institution, or a third-party capital firm, you should be ready to have and develop a relationship with your lender.
These three things will let you know if it’s time to apply for a business loan. If you are uncertain if you’re in the clear for any of these factors, it is best to wait until you are positive so that you do not apply when you are not yet ready, hurting your chance at receiving the loan. However, you are not on your own in the application process. Affinity Consulting Group helps businesses like yours attain the funding that they need. We partner with three financial institutions to get businesses earning as little as $3,000 per month up to millions in funding a loan. If you are interested in applying for a personal, business, residential, or commercial loan to fund your business make sure you send us a message on the Contact Us form. We are accepting new clients.