You own a carpet-cleaning company and cannot keep up with payroll. To make matters worse, the time has come to invest in new equipment and cleaning supplies. The investment in new machinery cannot wait, as your competitors have already purchased new equipment.
You need a short term loan, but you have no idea where to start. You don’t know your business credit score. And, you have some negative collections on your account.
What can you do?
In this case, term loan financing is a viable option for owners who don’t have a great credit standing. Business term loans are more flexible than many people realize.
And, business owners don’t need a high-income threshold to qualify for a business loan. This article will show you what it takes to get business financing. Let’s explore.
Determine Your Business Profile
Before applying for a term loan, you must assess your company’s worthiness. Lenders will examine your company’s financial standing, in addition to the products or services you’re offering.
You’re more likely to get qualified if you offer successful products or services. Getting financing with an untested product or service will be more difficult, but it’s not impossible.
Additionally, you must show positive cash flow throughout the lifespan of your business. Lenders want to know that you have enough funds to pay back the loan.
The good news is that you don’t need a large amount of income to qualify for a short term loan. However, income standards depend on the lender. For example, some companies offer business loans for business owners who make $20,000 in monthly revenue.
If you fall short of a $20K threshold, find ways to boost sales to generate more revenue. Moreover, pay down as much debt as you can if you’re in heavy debt. Lenders will assess your debt-to-income ratio to determine if you’re in a stable financial position.
Lenders are less willing to lend you additional money if you’re struggling to keep up with payments for other loans. Business debt is one of the primary reasons why lenders deny borrowers the credit and loans they need.
Know Your Business Credit Score
Your business credit profile is also vital to the qualification process. Your business credit is separate from your personal credit score. However, most lenders will also look at your personal credit score. You can look at your business score at the following reporting agencies:
- Equifax Business
- Experian Business
- Dun & Bradstreet
Knowing your business score is the best way to see what lenders will see and improve your score. It will also alert you of any mistakes on your report.
If you have a bad business score, you can start by paying your bills on time to build a positive profile. And, you should pay down any debts that plague your profile. You should also pay down your bills more than once a month to lower your debt ratio.
- Note: While paying down your debts, make sure that the agencies eliminate the negative collections from the reports. Failure to do so will continue to stain your record, even though you made good on the payments.
Another good way to enhance your credit profile is to open a credit account with suppliers to add more positive payments to your profile.
Assess How Much You Need to Borrow
After examining your business, calculate how much you need to borrow based on your circumstance.
- Example: If you need to borrow money for new equipment, calculate how much each unit will cost. Then, factor in the interest that you’ll pay back throughout the lifetime of the loan.
You can calculate how much you’ll owe using a business loan calculator. Further, create a budget and see how the loan will affect the financial health of your business in the long-term.
Also, knowing how much you need to borrow lets lenders know that you have a concrete plan and intend to pay back the loan in a timely fashion. Avoid borrowing the maximum amount that a lender may afford you. Instead, determine the exact amount you’ll need to avoid overextending yourself.
Moreover, you should prepare yourself if the approved amount falls short of expectations. Lenders may approve you but for far less than you anticipated due to several factors, such as:
- High debt
- Low credit score
- Low income
Therefore, you should determine the next steps if the loan balance isn’t enough to cover your expenses.
Know the Structure of Your Loan
When it comes to term loans, you’ll typically make monthly payments on a fixed term. Short term loans usually last anywhere from 1 to 5 years. The term also depends on how much you intend to borrow. A short term loan offers the following benefits:
- Lower interest rates
- Fast approvals
- Flexibility
With that, the advantages depend on the type of lender you choose.
Shop Around
After assessing your business profile and knowing what type of loan you need, you must shop around for the best lender that will offer you a loan. You’ll find plenty of lenders that will work with borrowers who have less-than-stellar credit or income.
If you’re dealing with credit issues, for instance, many loan companies will work with credit scores in the 650s. When it comes to interest rates, look for an institution that offers a low APR. For example, great loan companies offer an APR starting at 6.95%. And, find a lender that offers fast approvals and funding times. More importantly, choose a lender that requires minimal paperwork during the approval process.
Term Loan Financing Done the Right Way
Term loans have changed over the years, as you don’t need a high credit score or high income to qualify. Lenders can also offer business loans that have flexible payment systems and lower interest rates.
The first step to term loan financing is assessing the financial shape of your business. Lastly, you don’t have to settle for a higher interest rate if you have a lower credit score.
Interested in learning more about business term loans? Click here to know the best type of business loan for your business.
