Applying for a business loan can be nerve-wracking, even when you have strong credit and plenty of positive references. One of the biggest factors that potential lenders consider is how long your company has been in business and its track record for repaying similar types of loans. This can be a difficult challenge to overcome as a start-up business because you just don’t have the history yet that lenders like to see.
Bankers appreciate a business that has operated for more than five years and has a positive cash flow because it means the owner had the skills and resources to get through the challenging first few years. While you can’t control the age of your business, you may have better control over other factors that lenders consider when deciding whether to approve a business loan.
Cash Flow and Frequency of Payments
Positive cash flow means that your company has the financial resources available to buy what it needs or to quickly convert assets to cash for the same purpose. Lenders also like to see businesses pay their debts weekly or monthly as opposed to longer terms like Net 60 or Net 90. This indicates that the business has the cash on hand to make the payments and doesn’t have the need to stretch out the due date as long as possible.
Even though you might prefer to keep minimal cash reserves in your business, it’s a good idea to increase this amount when you know that you intend to apply for a business loan. It gives lenders more confidence that your business has the necessary funds to repay the loan as agreed.
Be Clear About What You Intend to Do with the Money
Formulating a plan about how you will spend the borrowed money shows lenders that you have put considerable effort into the process. It also indicates that you’re not attempting to borrow more than you need, which can raise a red flag for some lenders.
Typical bank financing doesn’t work for all types of businesses, especially small and start-up companies. To learn more about alternative routes of business financing, please contact Flex Capital today.