Are You Prepared for a Business Loan? 5 Key Questions to Consider

Running a business involves managing various expenses like payroll, expansion projects, or equipment repairs. Sometimes, you might need extra working capital to cover these costs. While alternative financing can be important for the future of your business, it’s crucial to ask yourself a few key questions before starting the loan application process.

In this article, we’ll explore five questions that you should be able to answer about your business’s financial health and how working capital fits into it. By the end, you’ll know if now is the right time to go for a business loan.

First, check if your credit score meets the minimum requirements set by most alternative lenders. A low score could disqualify you from getting a loan. Instead of feeling discouraged, focus on improving your score by paying bills on time, reducing debt, and avoiding new accounts. If your score is already above average, that’s a plus for your loan application!

Before you apply, research different business loan providers. Understand their products, qualifications, and funding processes thoroughly. This knowledge will help you filter out lenders that don’t suit your business needs.

Consistent monthly sales are another critical factor. If your sales are irregular or your sales ROI is low, you might not qualify for financing. Most lenders are strict about their monthly sales requirements, so applying without meeting them could be a waste of time. Focus on increasing monthly sales by extending business hours, introducing new products or services, or ramping up marketing efforts. Meeting the monthly sales requirement will bring you closer to securing a working capital loan.

Having unpaid debt can add stress and make it challenging to repay a new business loan. Lenders are less likely to work with businesses already burdened with loan debt. Even if you qualify, taking on more debt could risk your financial stability. Reduce your existing debt as much as possible before applying for a new loan to improve your chances of qualifying and protecting your business’s financial health.

Lastly, be aware that some lenders won’t finance businesses that haven’t been operating for a specific period, usually a few months. If your business doesn’t meet this criterion, focus on running your business successfully until you do qualify.