Business owners can get easily overwhelmed when taking out a loan for the first time. Well, we can’t blame them. Taking out a loan is a big financial decision that can affect future cash flows. And in many cases, can incur emotional implications to them.
Well if you’re a businessman yourself, we have good news for you. There are best practices to guide you throughout the process. To make the right business decisions and minimise the emotional impact when taking a loan, it is best to reconstruct your business plan, do the necessary research, and make an objective decision based on your business’s current financial situation. Here are some things you should ponder on before deciding to apply for additional business funding:
Should you get a loan?
Getting a loan should never be an impulsive decision. There are smart and strategic reasons why business owners seek out loans. Aside from covering capital gaps, getting funding for business expansions, equipment acquisition, increase in inventory and client orders are some of the best reasons to take out a business loan. If your motive does not fall under these categories, you should rethink your decision carefully before applying for a loan to determine if it’s both necessary and helpful to your business. Thanks to innovative new approaches by FinTech companies, there are a growing number of alternative ways to get the cash you need to fund your business priorities.
Finding the right lender
Over the years, banks have become infamous for rejecting the loan requests of small business owners. That’s why it shouldn’t come as a surprise why it’s no longer the top option for SMEs when they need funding for their business. Moreover, SMEs also find difficulty in meeting the loan qualifications of banks. Most of the time, they require rigorous documentation and scrupulous credit checks, which usually take months to process. So instead of waiting, SMEs tend to seek other financing options that can meet their urgent needs.
With the development of the internet as a tool for both online research and fresh approaches to problem-solving, more and more SMEs are turning to new, innovative alternative funding sources. But among these options, how will you know which is right for you? Here are some criteria to help you decide:
Ease of process
Business owners should not have a difficult time securing funding, especially to address short-term capital gaps. Choose a funding solution that offers a simple and easy application process; one that is easier to qualify for. Just make sure your business is operational and has the financial capability to meet the repayment obligations.
Take a good look at the application terms. Read thoroughly and understand each premise to make sure the terms offered by the provider are suitable for you. If you prefer funding that doesn't require the submission of collateral, then direct your efforts in finding one that offers the most reasonable interest rate. Usually, unsecured funding (no-collateral) have higher interest rates than secured funding.
Interest rates and other fees
Aside from the interest rates, you should expect to pay additional fees. Find out what the fees are and do your own computation before committing. Only transact with companies that properly communicate fees upfront—hidden fees are a red flag.
Choose a funding provider with a good reputation and research what their current and previous clients are saying about them. You can easily verify any company’s credibility by checking their clients’ testimonials and reviews online.
Tips for Getting a Quick Approval
By now, you should clearly know your reasons on why you’re seeking funding. You should also be able to identify your top choices for funding providers, so you can move forward with your application. To get a quick approval for your business loan, here are some of the best practices to keep in mind:
- Choosing the right funding alternative
Traditional loans are not the only funding source. In fact, in many cases, there are more suitable options for small business owners, such as purchase order financing, invoice financing, business grants, and revolving lines of credit. Determine what funding sources are available and how each one could potentially benefit your business. Since you already have a clear purpose, it shouldn’t be difficult to choose the right funding arrangement to fit your needs.
- Fill out the forms properly
There are some private financing options that have fully transitioned to an online application process. If this is true of your chosen provider, it’s easier to fill out the forms. Before submitting, double and triple check to ensure there are no typographical errors, no incorrect numerical data, and that all requested information is accurate. Oftentimes, these errors stall the application process.
- Prepare your documents
Before you submit your application, review the list of document requirements. If you have them on hand, then you’re good to go. If not, get the documents you need and keep them together in one place. Online application usually requires a soft copy, specifically clear scans, of these documents. So make sure you have those as well. Store these files in one folder on your desktop for easy uploading.
- Know the application and approval process
Research and understand the application timeline and the process steps. You need to know how long it takes the funding provider to review and process your application. This information is usually published on the provider’s website. Approvals should be easy if you meet their qualifications and the documents you submitted are complete. In the event that the waiting period for approval extends beyond the agreed date, you could follow up with the provider to determine the status of your application.
- Know your limits
Are you ready to submit your application? Before deciding to push through with your loan application, double check the amount you intend to borrow. Do your calculations and don’t forget to include interest rates and other fees. Then, ask yourself one important question: Are you absolutely certain that you could meet your repayment obligations as agreed? If the scheduled payments are too large, it could negatively impact your financial position. Worse yet, it could get you mired in a seemingly endless cycle of recurring debt. It is best to avoid this detrimental effect by making smart financial decisions.
A Final Take on Addressing Your Business Funding Needs
There is nothing inherently wrong with borrowing money. When your business needs additional funding, it can open doors to endless possibilities for growing and scaling. The problems that drag your business down usually only arise when you make impulsive and poorly researched decisions. To avoid these issues altogether, we suggest that you identify a clear business purpose for funding requests, research and carefully select the right funding solution and provider that fits your needs, and follow established best practices when applying for additional business funding.
Are you seeking smart, streamlined, and innovative funding solutions for your business? We can help. At First Circle, we offer short-term business financing services to assist small and medium enterprises who need to fill temporary capital gaps. Click here to apply.