If your business is facing a serious cash crunch, applying for a loan is the next best thing you can think of. You need cash to keep your operations running, support your expansion plans and increase your revenue. If you have no other option of getting money, you must opt for a loan. But before you apply for a loan, you need to understand that you are accountable to repay it, no matter what happens. Below are a few guidelines that you must follow before you approach a lender:
Know your credit score
Before you apply for a loan, you must know your credit score. If you approach a bank or any traditional lender, they will check for your credit score. Credit scores play an important role in loan approval. Request your personal credit report – or you can get one for free at AnnualCreditReport.com. Once you get the report, make sure all the data listed is correct and there’s no mistake.
Any score above 700 is considered a high credit score. If your credit score is above 700, you will most likely get a loan at an attractive interest rate. If you have mid-level credit score, between 600 and 700, then you may get the loan but the interest rate will be higher. Any score below 600 is considered a low credit score. It can be difficult to secure a loan with a low credit score.
Know the exact amount you need
If you are not sure exactly how much cash you need to operate or expand your business, meet with an adviser before you approach a lender. Share all your documents, business plans, expansion plans, business model, and expenditure reports. Also let you adviser know how you are planning to spend the money you borrow. The adviser should be able to tell you the amount of money you should borrow.
Know your options
There are primarily two types of lenders: traditional banks or credit unions, and non-traditional sources. One alternative is OnDeck. This is a financial platform that provides loans to small businesses in the US. Although the credit rates are likely to be higher than average bank rates, their approval process is much faster. Your loan repayment is done in small increments every day, thereby reducing the chance of missing a bigger monthly payment that is associated with a traditional loan.
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