If you’re looking to expand your business, you may be
considering getting a loan. In order to achieve that goal, you’ll need to
examine the financial health of your business, predict the financial forecast,
make sure your business credit is acceptable, and consider funding options.
What is the financial
health of your business?
Do you know how your company is measuring up? It’s important
not to guess. You need to analyze all your figures.
If you need help with this analysis, it’s not a bad idea to
purchase a financial dashboard to help you monitor your cash flow and determine
if your pricing is right for your expenses.
The top three affordable financial dashboard programs are:
- inDinero: This program pulls data from your financial institutions, so you don’t need to spend hours plugging in the numbers.
- BodeTree: If you use QB, BodeTree will create analytical reports for you. The two go hand in hand.
- Corelytics: This program is more flexible, allowing you to import information from several sources. Out of the three, it is the more expensive option.
What is your financial
forecast and how do you predict it?
If you want to get a loan, any investor will require a solid
business plan. Wouldn’t you? Investors need a decent assessment of where you
stand and where you plan to be in a year or more.
However, even if you don’t plan to borrow funds, you should
be aware of how your business is actually doing. If you can forecast your
company’s financial health into the future, you can mitigate risk and guide
your success. A business owner always needs to be planning and budgeting, so
they can project income and expenses over the next few years.
Assessing and planning can be a tedious process, but in the
end, you’ll be able to:
- Tackle problem areas head on before they become a disaster from which you can’t recover.
- Know that your company is in fact viable (rather than hope it is).
- Understand your future cash needs, so that you can plan ahead.
- Assess your business as an outside agent would.
You’ll need to work out how often to update your financial
forecast. If you’re running into trouble (or on the flipside, experiencing a
sudden growth spurt), you’ll want to monitor the figures weekly, perhaps even
How is your business
When you open a credit line for your business, you’re
building a reputation with the credit bureaus. Not all transactions are
gathered by the business credit bureaus, but the ones that are collected create
an accurate report for your business.
Your personal credit score is different for a business
score, which is based on transactions using your employer identification number
(EIN). That score ranges from 0 to 100 (whereas your personal score ranges from
300 – 850).
To build your business credit, you’ll need to open trade
lines and use them as much as possible over a period of time. Most of the same
rules apply that you use for personal credit. Don’t be late and don’t
overextend yourself, but make sure to establish credit lines to show you can
handle a debt.
Note: It’s important to realize that personal credit is
different from business credit. Don’t use your personal information to apply
for business credit lines. You will not build your business credit that way
(but you might lower your personal scores).
In order to apply for business credit, you’ll need to make
sure to register with the various credit bureaus. Dun and Bradstreet (D&B)
is one of the most established business credit reporting agencies. Experian,
TransUnion, and Equifax also have business divisions.
Establish a business phone line and register it with the 411
directory, so that a lender can check up on you. In addition, make sure you
have all required business licenses or red flags will go up.
As you develop a credit history, make sure to make your
payments on time. If you run into trouble and get behind, contact the vendor to
work out a solution, so they don’t rush to report the delinquent payment. One
negative report is enough to do serious damage.
If your business credit report already has blemishes, you
can try to fix them as you would your personal report. Again, many of the same
rules apply. Check the report on a regular basis and if there are errors, dispute
them immediately. You’ll need an excellent credit score if you plan to borrow money
from a financial institution.
Need some cash to
Borrowing money for your business isn’t an easy process, no
matter which path you select. Many entrepreneurs are struggling to find capital
for their ideas, but few have what it takes to get a loan secured. Having said
that, you may still have more options than you realized. Here are a few
If you can get a loan from your bank, they will often give you a good deal.
However, loans are notoriously hard to get for small business owners. Many bank
loans have recourse, meaning if there
is a default, the bank can go after your personal assets. Avoid this risk at
These are very attractive, because the interest rates are very low and the
payback terms are nice and long. However, the hoops that you need to jump
through, and the sheer length of time it takes the government to process the
request, requires a certain patience that most of us just don’t have.
Uncle Bob: Your
friends and family are probably your most ardent supporters. Some may even be
willing to invest in your venture, without requiring reams of forms signed in triplicate.
The downside is that mixing family and business can be like mixing chlorine
with ammonia (which is toxic and explosive).
Personal assets and
credit lines: If you have equity in your home, you might be tempted to take
out a second mortgage. Or if you have empty personal credit cards, it’s tempting
to use them to give your company a boost. However, if your business suddenly goes
south and out of control, you might wind up losing important family assets. This
should be a last resort option.
Once you’ve taken the time to properly analyze your company’s
financial health, now and into the future, you can work to build strong credit.
With all these factors in place you can make an educated decision about whether
a small business loan is wise for you.