If you are a business owner and need to borrow money, you are not alone. In 2021, a staggering 43% of small businesses applied for business loans. However, not all businesses look to traditional funding, such as banks, for financial support. Picking the right option is vital in understanding your business's needs.
To avoid picking the wrong lender, you need to avoid these Mistakes.
Not staying up on your credit score.
Contrary to what some people believe, your personal and business credit score will come into play when applying for a loan. Lenders look at your personal credit score because it represents your creditworthiness and your ability to pay back your debts. Most banks look at credit scores of 700 or higher as a good personal credit score.
On the other hand, your business credit score will usually range between zero and 100. However, a score of 80 is considered a good score for most financial institutions.
You can check your personal credit score with the following companies:
Equifax
Experian
TransUnion
You can check your business’s credit score with the following companies:
Dun & Bradstreet
Equifax
Experian
So what happens when you or your business does not have the best credit score? In most cases, you will struggle to get a loan from a traditional lender such as your local bank. This can cause financial strain for your business, and while you spend time searching for a lender, you may not be able to
Buy equipment
Keep up with your inventory needs
pay your employees
This can lead to:
Not meeting your client's expectations
a lack of growth in your business
possible closure of your business
The Solution:
Having bad credit does not mean that your business cannot succeed. Alternative lenders such as Credibly can offer you working capital loans even if you have a lower credit score. They strive to help businesses fund their day-to-day operations during a slow time of the year. This will not only keep you from not paying your employees this will also help your credit score with each on-time payment you make.
Credibly rather than focusing strictly on your financial metrics, they measure your business's overall health and potential. They then work with you to better understand your short-term needs and longer-term goals and match you with the best finance options.
Not researching credible lenders ahead of time.
Plan ahead. Nobody wants their business will hit hard, but you want to have done your research and found credible lenders in case. This will save you time and the stress of looking for lenders under the pressure of hard times and possibly taking an offer that is not the best option. For example, say you build pools, and most of your sales are in the spring and summer months. Based on previous years, your sales during peak months cover your business expenses for the entire year. However, what happens if it rains all summer and you cannot build many pools, and your bids are getting canceled? If you don't have the cash flow to cover your expenses quickly, your business could shut down. In this situation, having research done on credible lenders could mean the success or failure of your business.
Conclusion
Hard times will come for everyone, but getting the funding your business needs does not have to be an unpleasant experience. Planning ahead and researching the lenders best suited for your business can take the stress away. However, before signing on any loan, make sure you understand the terms of what they offer.