Small business owners seek small business loans in Queens, NY for all sorts of reasons. Perhaps it’s to keep the company afloat during those first critical years of operation. Maybe it’s to fund an expansion project. Maybe the money will go to developing and marketing new products. Whatever the purpose, small business loans make it possible to improve the company in some manner. Before you apply for this type of loan, there a few things you should know.
Take Stock of the Company Then Decide If You Need a Queens Small Business Loan
Before beginning the loan process at all, take a good look at the company. Identify the reasons for seeking a small business loan. Do you really need some sort of outside financing to accomplish those goals? If it’s possible to manage them without weakening the company’s financial stability, you may want to avoid taking on new debt.
When it’s clear you need some form of outside financing, consider how many different options are open to you. There’s the option of applying for a small business loan, seeking funds from angel investors, looking into a line of credit, or working with an invoice factoring partner. By weighing the benefits and possible drawbacks associated with each financing option, you can determine if the small business loan is really the best fit for your company.
Doing Your Research in Advance
The goal is to obtain a Queens small business loan without having to deal with repeated objections. This means you should take a good look at the current financial state of the operation. Your goal is to focus your attention on lenders who are more likely to approve your request for funding.
Start by ordering copies of your business credit reports. The plan is to identify the rating each major credit bureau assigns to your business. You also want to be aware of all comments, positive and negative, that creditors have submitted to those bureaus.
Remember that different lenders may pull one, two, or all three of those reports. By knowing what’s found in each one, you are prepared to respond to any questions the lender may have about your finances.
A small business that’s relatively new may not have much of a credit history. That means lenders will pay close attention to the personal credit rating of the owners. It never hurts to check your personal credit reports along with the business reports. Doing so provides the basis for deciding who is most likely to approve your loan application. If your personal and/or business credit scores are below the minimum required by a specific lender, you know to move on to the next one.
While reviewing your credit reports, make a note of information that’s outdated or entered in error on your reports. The major credit bureaus will work with you to remove false information as well as update old information. Doing so will help boost your score by a few points.
During this stage, you may also decide to delay applying for any financing. Instead, you choose to wait six months to a year and work to improve your credit score. This strategy could allow you to become eligible for loans that come with more favorable terms and conditions.
Keeping Business and Personal Finances Separate
Small business owners, especially entrepreneurs who are just launching a company, sometimes blur the lines between personal finances and company finances. This does not just create additional headaches during the tax season. It can also complicate the process of obtaining a small business loan.
Your best bet is to establish business accounts that are in the company’s name. Keep your personal finances separated at all times. A lender may still want to look at both company and personal credit scores, but at least the process will be simpler. This approach also indicates you are organized and know how to run a business properly, something the lender will appreciate.
How Can I Improve My Chances for Acceptance?
If your current personal and company credit scores don’t leave you many financing opportunities, there are ways to improve the odds for acceptance. One is to reduce the amount of debt the company currently carries.
The company’s current debt to income ratio makes a difference. If a substantial amount of your monthly collected revenue is going to pay off debts, lenders are less likely to approve your application. Reduce the amount of debt and that ratio becomes more favorable.
Your credit utilization ratio is also important. This is simply the relationship between the credit limits others have extended to you versus the balances you have on those accounts. Ideally, you want your credit utilization ratio to be at or below 10%. Some lenders may still work with an applicant with a ratio of up to 30%.
In other words, the lenders you approach should see that 70-90% of the revolving and other credit you have in place is not being used at present. That indicates effort on your part to manage financial resources effectively.
You also want to avoid missing any payments. Lenders definitely like to see comments on credit reports that indicate you pay your current obligations on time or well before the due dates. Information of this type indicates you are a better risk and will improve the odds for acceptance.
Pay more than the minimum amount due when you can. Even a small amount over the minimum will result in more positive comments that potential lenders will read on your credit reports. That also exemplifies your desire to manage debt responsibly.
If at all possible, attempt to increase the amount of cash assets the company currently holds. Those assets will come in handy if you do need to pledge some sort of security. When the pledged assets exceed the amount you want to borrow, that also helps reduce the risk of extending the small business loan in Queens, NY to your company.
Does your company owe back taxes? Have any liens been imposed? If so, settle those before applying for a Queens small business loan. While they may not be deal breakers with all lenders, obligations of this type definitely minimize the odds of being approved, even as a high-risk client.
Prepare Your Documentation
Lenders will want to see up to date documentation that confirms your financial state. That includes company balance sheets, reports that accurately reflect the company Payables and Receivables, current credit card statements, statements on any loans you currently have open, and tax records for the most recently closed periods. A cash flow statement is also likely to be required.
The lender will still seek information independent of the documents that you provide. What you want to accomplish is confirming that you want to be transparent with your finances, and that the data the lender collects from other sources will match what you are presenting.
Secured and Unsecured Queens Small Business Loans
You’ve done all you can to make sure your reports are correct and the scores are the best possible. Now you should decide if you want to go for a secured or an unsecured loan. Secured loans require some sort of collateral or security. Unsecured loans do not require collateral.
If your credit score is acceptable but toward the low end, a secured loan is your best bet. Higher scores make an unsecured loan worth exploring. Pay close attention to the interest rate, how it’s applied to the balance, and the other terms and conditions found in the loan contracts. Remember to look closely at the APR. Those details will help you decide if applying with a certain lender is worth the effort.
The purpose of obtaining a small business loan is to improve the function, viability, and ultimately the financial stability of your company. Always make sure your finances are in order before you approach any lender. Doing so will make it easier to know who is most likely to approve the loan and offer the best terms and conditions possible at present. Remember to manage the loan responsibly and you are likely to have more options the next time there’s a need to borrow money.