Day Care Small Business Loans
Getting your first Day Care small business loan is a significant accomplishment as being able to successfully apply and receive a loan shows your growth as a small business owner. The truth is that getting a small business loan can be a daunting process. As such, you need to prepare yourself well before the actual process to prevent bottlenecks. This article is a guide on everything you need to know.
What to Know Before You Make the Application
A term loan is one of the most convenient types of loans for a young business. There are various types of small business financing such as invoice factoring, business credit cards, angel investments, and more. Consider the pros and cons of each so you can choose the one that is most suitable for you.
Analyzing Your Credit
Credit is everything when it comes to loans. For instance, if you lend someone some cash and they do not pay it back, will you be willing to give it to them some other time? Probably not. That is the whole basis of a credit score, it is a track record of your financial reputation.
As such, both your business and personal credit scores play a huge role in determining whether a lender will give you the loan. Moreover, they also determine how much you can get. Nevertheless, there are other factors to be considered when your Day Care small business loan application is being analyzed. But let us focus on how your credit scores affect your loan application.
Business Credit Score
During the early stages of their business, small business owners typically make the mistake of mixing their personal and business finances. The consequences of doing this is that you will have an incredibly difficult time when doing both your personal and business taxes. Moreover, applying for a Day Care small business loan becomes tough because you do not have a business credit score. Thus, ensure you establish your business account early so you can build a credit history.
Having separate business and personal accounts also ensures that issues from either account do not spill over to the other.
Personal Credit Score
Even after establishing a separate business account for your small business, lenders will still look at your personal credit score. The same way you would perform a background check on a potential employee regardless of their qualifications is the same way your personal credit score matters to lenders regardless of your business credit score.
Your personal credit score is affected by your history of payments. Thus, the timelier you are with your bill payments, the better your score will be.
Mistakes that lower both your personal and business credit scores include:
1. A high outstanding balance. Carrying debt is penalized even if you do not miss payments. Thus, ensure that your debt balance is always low.
2. Credit utilization. This refers to your current amounts of revolving credit. Always keep it under 10 percent.
How to improve Your Credit Score
Begin by accessing the information used by credit bureaus when calculating those scores. Fortunately, getting your credit report is free. For your business credit reports, head over toCreditSignal or Nav. For your personal credit report, visit Credit Karma,freecreditreport.com, or AnnualCreditReport.
After accessing your credit reports, do the following:
Check for errors.
It is commonplace to find that the account reflected in the report is not yours or that a transaction that could improve your score is missing. It is, therefore, imperative that you look for any errors in your reports so that they can get addressed as they cannot be removed unless you dispute them.
Check for Debts.
These are what lower your credit score the most. Pay them quickly while also asking for goodwill adjustments from your lenders to see whether they can erase the late payment from the report. This applies for your credit card debt as well.
Pay off tax liens.
These can adversely affect your credit score.You must pay them off.
Even though clearing errors and debts boosts your score in the short term, it is establishing good long-term habits that will see you get a perfect score. Follow these practices:
Ensure your balance stays doe.
Experts say that you should ideally use less than 10 percent of the total credit that is available to you. If that’s not possible keep it at under 30 percent. This will not only show that you can pay your debts, but it also indicates that you do not need debt to finance your needs.
Hire a credit monitoring service.
There are agencies which offer credit monitoring services for a fee. Enlist their services so they can help you stay on top of your credit report.
Specify Your Request
When making your loan application, make it as specific as you can by explaining to your lenders what you need and why. A good way of doing this is creating a budget showing how those funds are going to be used. If you want to buy a piece of equipment, indicate the market price as well as other associated costs, then project the revenue you stand to get from having that equipment. Even if the numbers are not precise, it shows that you understand your needs, and that could be all the incentive the lender needs to give you a Day Care small business loan.
Go Through Your Financial Statements
Your financial statements are just as crucial as your credit scores as they offer a lot of information about the state of your business. As such, review you statements over the years and have an accountant prepare the following when looking to apply for a Day Care small business loan:
Your income or profit and loss statement.
Cash flow statement.
These documents offer you detailed insight into your revenue and profits. When you have them in hand, the statements will help you answer the following critical questions that are likely to affect your Day Care smb loan application:
1. What is your source of revenue?
2. What are your costs?
3. Are you profitable?
If you realize that you are not profitable, have a detailed route on how you plan to become profitable.
Prepare the Documents
These are the most requested documents by lenders:
1. Financial statements for the past two years.
2. You tax returns for the last two years.
3. Your accounts payable and receivable. Have an accountant prepare these for you.
Understand the Offer
If you have a solid Day Care small business loan application, you are bound to get an offer. However, consider what made the lender to come up with it, and what it implies. A lender uses your documents to determine how much they should give you. Their offer also includes an interest rate and an APR, whose value is based on your credit scores.
APR and Interest rates
The interest rate refers to the percentage charged on your loan. The APR (annual percentage rate) gives you the bigger picture. It depicts the yearly average of the total interest you will end up paying in addition to service charges and fees. Thus, compare the APR and interest rate on your loan and seek the advice of a professional to ensure you make the best decision.