Small business owners have plenty of things to manage to keep their business growing. From a budget standpoint, there are many factors to consider in terms of equipment costs, inventory, payroll expenses, and other financial considerations. When you’re caught in the middle of these financial matters, consider applying for a working capital loan.
Working capital ensures that you will have enough cash flow to successfully run your business. Small business loans are often the best solutions if you suddenly find yourself in a tight situation financially.
With that in mind, here are things to consider before applying for a working capital loan.
The Amount of Funding You Need
Some lenders offer a maximum loan amount in the range of $150,000 to $200,000. Before you apply for one, evaluate your available funds, determine the amount you need, and finalize the purpose of the loan.
Borrowing not enough or too much can hurt your business. Instead of dealing with debt or fund shortages in the future, consult with a lender before moving forward. A lender will talk about your business’ needs before recommending loans and rates, as well as help you determine the loan amount that works best for your current financial situation.
When Do You Need the Funds?
If you need immediate funding, perhaps a traditional bank loan or an SBA loan is not the way to go. These loans can take weeks of processing before you receive any funds. The shortest waiting time for these types of loans is three days to a week.
Instead, look for a lender that can give you money within a few days, or even on the same day. These types of loans, however, may require applicants to offer collateral before they get funding.
Settle Unpaid Debt
Having unpaid debt could prevent you from getting approval for a working capital loan. If you have financial concerns like credit card loans or debts, lenders may be hesitant to work with you. Generally, it’s a good idea to pay off your debt first to improve your chances of approval.
Determine Your Lender’s Expectations
Every lender has a different set of requirements. You may work with a traditional bank that prefers bank statements, excellent credit, and a business plan. Other lenders may require you to earn a specific amount of revenue tied to the length of time you’ve been in business. Here are other requirements lenders may ask from you:
- Invoice history
- Tax records
- Credit score
- Business plan
- Bank statements
- Personal guarantee
- Annual revenue
Determine the Loan’s Specifics
It’s important to know the length of time you’ll need the funds. Most small business owners need short-term funding to draw a check or to bridge a gap between jobs. Most lenders, however, do not offer short-term financing solutions. If you need a custom solution, get in touch with a lender immediately to discuss your options.
Once you’ve settled these considerations, you can have a good chance of getting that much-needed working capital loan. It’s best to work with a lender who can help determine your needs. They can help you sort through your options, work out a payment plan, and make sure you get the capital you need ASAP.