Learning everything you need to know about a Restaurant small business loan before applying for one is the best way to get prepared. There’s no doubt that your business is reaching a significant milestone when the day comes to get a small business loan. Regardless of whether you need to make improvements or renovations at your company, you want to buy new equipment or inventory, or your marketing department could benefit from a capital infusion, a small business loan can help you grow.
The more you understand the Restaurant small business loan process and what lenders expect from you when applying, the better you are stacked up to get approved for your small business loan request.
Consider all financing options.
These days, small business owners aren’t limited to just using Restaurant small business loans to finance their growth. Other ways to get funding in today’s modern world of finance include working with angel investors, taking on funding partners, crowdfunding, or using a merchant cash advance or invoice factoring company, or using existing credit lines. Each type of financial service has advantages and disadvantages that must get investigated to decide if it is the right solution for your company.
Know what lenders want from you.
Lenders have different requirements, based on the loan product you are considering. Traditional lenders, such as local, regional, and national banks rely heavily on the credit scores of their potential borrowers to make their decision whether or not to lend. Additionally, the borrower’s credit score will also get used to determine the rates and terms of the loan. Generally, a business and borrower with higher credit scores will gain access to better rates and terms than a less qualified borrower.
To reduce complications, it is always a sound idea to separate business transactions from personal expenditures. In other words, keep your business checking, and savings account strictly for company use. Maintain your regular bank accounts for everyday spending. Credit factoring companies that specialize in business credit assessments use data based on your company profile to assign a business credit score. This credit score also gets evaluated to determine creditworthiness for the company. On-time payments are critical to securing a good to excellent credit score.
Banks and lending institutions also take into account the credit score of the individual who is seeking a loan. Personal credit scores over 700 points are considered ‘good’ scores. Individuals who have a credit score over 800 points fall into the ‘excellent’ category.
There are many factors have a positive or negative impact on your credit score. Let’s look at them:
Positive: All creditors paid on time, as per the credit agreement.
Negative: Missed or late payments.
Lenders are providing a service that helps their customer get financing for whatever they need to purchase. For this service, they expect the borrower to pay them back on the terms they agreed. Missed or late payments break the contract. Further, late or missed payments often change the terms of the agreement with higher interest fees and penalties. Late payments take a significant toll on your credit score. However, the good thing is that time always passes. Every payment that you make on time going forward is going to take some of the stings away from late payments from a year ago. Even if you missed payments before, you could still make up for them by being more responsible today. It is also worth noting that in some legitimate cases, creditors may be willing to remove a late payment report on your credit profile. You’ll have a better chance of getting it removed if the missed payment is out of the ordinary for your account or a simple mistake or oversight and not so
Total Number of Accounts
Positive: A variety of credit accounts
Negative: Issues with credit utilization
Generally, lenders like to see that potential borrowers are already managing their credit responsibly. Having a variety of credit accounts including installment (mortgage/vehicle) loans, revolving credit cards, and department store credit lines help show you manage your credit sensibly. Avoid keeping high balances on your credit accounts to assure that your credit score remains firm. By showing a long record of payments over an extended period, you’re showing lenders your capacity to repay and respect the terms of your original lending agreement. This history signals to other potential lenders that you are a safe bet to lend additional funds.
Credit Report Accuracy
Positive: Assure accurate reporting
Negative: Spending time cleaning up mistakes or errors
Since many lenders are insistent on borrowers having an acceptable credit score, borrowers need to be diligent that everything listed on their credit report is correct and up to date. If you notice incorrect data, contact the credit reporting agency and ask them to verify the account information. If they are unable to verify the disputed account, the entry has to get removed from your file. Collection accounts and liens are particularly damaging to your credit profile, so it is in your best interest to get in contact with the creditor to ask about making arrangements (if you owe the debt.) If you don’t recognize the creditor, you can request the credit reporting agency investigate the entry. If the creditor is unable to prove that you owe the debt, this can also get removed from your credit report file.
Get ready to apply for your Restaurant small business loan.
Once you’ve taken steps to divide your company finances from your personal accounts, as well as reviewed all of the entries on your credit report to make sure everything is correct and up to speed, you can take the next steps to securing a small business loan. If you are unable to qualify for conventional bank loans due to various reasons, you can consider an alternative financial product such as a merchant cash advance or invoice factoring to help seal your funding gap.