With the exception of a few, many entrepreneurs rely on their business’ cash flow or borrowed funds to finance new projects and grow. A word of caution to this group: Even the right loan can burden an entrepreneur and become the wrong loan if it’s taken on at the wrong time.
Entrepreneurs must evaluate their current situation to determine if a business loan is a good idea. Here are three questions that can help you decide if the timing is right:
- Is your business ready? Now is the time to be honest about your current situation. Are your revenues growing? What does your credit profile look like? Do you have a sound business plan for expansion? What would you do with a loan to facilitate growth? Many entrepreneurs want to ramp up quickly and see their vision become a reality now. Sometimes, it may take three or four years to make your plans happen. Have patience and take time to better position your business for a business loan down the road.
- Do you understand the current lender landscape? The world of small business finance is evolving at a very quick pace. There is no longer a one-size-fits-all business loan, and entrepreneurs need to be savvier about understanding the full scope of options available to them. To understand your lending landscape you must define why you need the loan and recognize what loan products you qualify for. Are you financing a short-term need, buy equipment, or meet some other long-term need, like a real estate purchase? Pursuing the wrong loan will waste time and cost more money.
- Do you understand your current credit profile? Different lenders have different credit thresholds and your credit profile directly impacts your ability to get a loan. It’s important to know where you are before you begin filling out loan applications. Start by learning what the major credit reporting bureaus know about you. The three major personal credit bureaus are Experian, Equifax, and TransUnion. It’s also important to ensure your business credit profile is accurate. If you have a business, you have a business credit profile. Dunn & Bradstreet, Experian, and Equifaxare the three biggest business credit reporting bureaus. Some of the information they report about your business is part of the public record and is sometimes incomplete. Make sure they have the right information regarding your business, or potential lenders could make a wrong decision about you or your business.
Being able to answer to these questions will help determine if you and your business are ready for a loan.