When it’s time to take your business to the next step, it’s also time to consider borrowing money to support that growth. But if you don’t borrow smart, you may end up doing more harm than good.
I’m the Director of Credit at Dealstruck, and I’m an expert at figuring out which businesses are the best candidates for loans. At Dealstruck, we want to set you up for success. So if you’re thinking about borrowing, take these three steps before you borrow.
- Make sure you’re making money. This may seem obvious, but you can’t borrow money if you’re not making money. Borrowing is about growth, not plugging holes. Taking on loan payments you can’t afford just makes the holes bigger. Before you know it, you’re taking out more loans just to pay loans. So make a budget. Figure out exactly how much is coming in and how much is going out before you add debt to the equation.
- Look inside first. Make the most of the money you already have. Small, internal changes can add up to a huge difference in your overall cash flow. Offer a discount to convince your customers to pay early. Take a hard look at your expenses and shave off what you can, then talk to your vendors about extending your terms. You may have planned to borrow against your invoices, but once you’ve made these changes and more money is coming in, that may not even be necessary. If you decide loans are still the way to go, you’ll get more bang out of your borrowed buck if you’ve maximized your income beforehand.
- Do your research. There’s a whole world of lenders out there, and even more borrowers. Where do you fall on the spectrum, and what kind of lender is the best fit for you? You won’t know until you learn the landscape. If you have an awesome credit score but you’ve only been in business a year and you’re not making money yet, not just anyone is going to loan you money. If you’ve done your homework, your expectations will better match your results.
Lenders want to see that you have your house in order and under control. You have to show them what a good risk you are – that you’ve made your small but mighty business operate at optimum capacity – that you know what you’re talking about – and most importantly, that you will make the most out of the money you receive (and pay it back).