Managing business, primarily when finances are concerned, is not easy. It demands to keep an eye on the daily operations and another on the future. Financing could be a part of your plan if your long-term plan is focused on growth.
You may have individual plans of expanding your business in specific ways, like, upgrading your production line and growing your business to more enormous audiences. Planning can help you approved for financing. A plan gives you time to compare the business loan options.
Here are some things to consider while planning your next round of financing.
1- Find out how much funding you need
The most important thing you need to do is to find out the amount you will need to borrow to fund your goals when the time of getting finances comes. Getting an accurate estimate of your next project cost can help you not borrow more than needed and save on the unwanted processing fee and interest charges.
Having an accurate estimate of your financial needs for your next project can also help you make sure that you do not draw less fund amount than needed; it is needless to say that less money is of no use. This can also help you plan your budget and flow of cash for repayment. The finance you take on your business must be affordable monthly and must not have an undesirable impact on your cash flow.
You should factor in the returns on investment too. If you’re planning a big project that requires more funding, like starting a new business location, then consider how much-added revenue would be generated. An increase in the sales will help you offset a higher monthly payment toward the loan. You also have to make sure that your business can afford to make the payments in the interim of realizing the additional revenue.
2- Choose from the business loan options
The business financing options are multiple. These options differ in terms of their interest rates, lock-in periods, amounts of loan, and frequencies of repayments. The few of the most standard choices are a revolving business line of credit, Small business Administration Loan, Small Business Loan.
The Small Business Administration (SBA) loan gives you the flexibility of borrowing between $20,000 and $5,000,000. There is no lock-in period, meaning that you don’t have to pay anything for the foreclosure. Moreover, the interest rates are between 5 to 14%.
The Small Business loan, too, does not have a lock-in period, and therefore, no foreclosure fee. It has a range of repayment frequencies. You can repay on a daily, weekly, or monthly basis. It has terms of up to eighteen months.
The revolving business line of credit allows you to withdraw the funds as and when you require them. There is a preliminary credit check done, and a credit limit is given. It can be ideal if you need funds quickly or to refinance your existing loans with higher interest rates.
3- See your qualification for business financing
The next step is to make sure that you qualify for a loan. The ways to check the eligibility are to look at the needs to be eligible for funding, compare them to your business and personal credit scores, tenure of the company, and the average annual revenue for the last two years. There are others, though less critical, factors too. The money-lenders want to make sure that your business can repay.
There were some of the essential pointers to consider while planning your next round of financing better business loan options.