Whether you’re getting your business off the ground or are taking it to the next level, you may wonder if a loan is what you need to succeed. If the timing is right, a business loan could help your company get the cash necessary to hire employees, buy equipment or increase inventory.
But how do you know if now is the time, or if a loan would be a bigger obligation than your business can handle right now? Look for these five signs to know when the time is right.
1. Finances are strong. It may seem contradictory, but if your company is strapped for cash, now’s not the time to apply for a loan. After loan funds are dispersed, you’ll be left with loan payments that could weigh down your company over time. It’s far more effective to borrow money when your business is easily able to make payments, with growing revenues and a positive credit profile.
2. You’ve found a great business opportunity. Maybe you have a chance to net a big client, but don’t have enough equipment to handle the desired timeline. Or maybe a competitor has offered to sell their business to you. A loan could allow you to fund the opportunity while still covering your day-to-day expenses. That way, you can take advantage of your big chance, leading to potentially greater growth down the road.
3. You have a business plan. Most lenders will want to see a business plan, which assures them that you have a plan showing how your venture will grow. Write out a plan that indicates exactly how you’ll spend money to facilitate growth and your projection of how those changes will increase your revenue. Also consider the time frame — once you start spending the loaned money, how long will it take to see the benefits?
4. Your business’s credit is good. As with personal credit, your business’s ability to qualify for loans is influenced by loan history. So before applying for a loan, request a copy of your business’s credit report to ensure it’s accurate and complete. There are many business credit reporting bureaus, but three of the largest are Dun & Bradstreet, Experian and Equifax. If you haven’t previously established credit in your company’s name, taking out a business loan and making timely payments on it could go a long way toward boosting your credit profile.
5. You’ve researched loan types. Different businesses need different types of loans, and the loan that’s right for your business at one time may not be the right one at another. For example, a line of credit works well when funds are needed over a stretch of time, while a fixed term loan is best for businesses making a one-time purchase. An experienced business banker can help you identify the loan that best fits your business and its current circumstances.
Consult Our Experts
Get the right solutions for your business’s unique needs. At Central Minnesota Credit Union, we’ll take the time to understand your business, then explain the options available to you. Together, we’ll help you choose a loan that’s right for your business. Visit mycmcu.org/business/loans or call 888.330.8482.