Small businesses might need additional financing to purchase inventory, purchase or lease equipment, expand to a new city and others. They might encounter cash flow problems because of their immediate obligations. In such cases, they might need to apply for a loan. If you’re a small business owner, the business loan amount you get will rely on a few factors.
Cash Flow History
One of the main factors that determine the loan amount you get from a creditor is your business’ cash flow history. Creditors want to know more about your cash flow because it provides an overlooking view of your capacity to pay. In some cases, small businesses have high profit but have poor cash flow. This may make it difficult for them to repay a loan. That’s why lenders want to see your company’s cash flow history. Consistent cash flow means that your business can pay immediate obligations including the loan you applied for.
Repayment History
Creditors are wary of applicants that always default or pay their loans late. Even if they approve those kinds of applications, the loan amount might be lower than expected and the interest rate would be high. You have to show lenders that you have a good repayment history. Pay dues on time or early. This builds your reputation and may get you the business loan amount you want.
Financial Capacity to Pay
Your potential creditor wants detailed information about your small business’ financial health. They might want to see your accounting books to review cash flow, profits, operating expenses, working capital and others. Be open about your company’s financial situation. Your lender wants to know if you can pay the amount you asked for in a timely manner.
Business Plan
If your business is new, you might not have repayment history or cash flow to get the loan amount you want. In such cases, you’ll need to present your business plan from one to five years to creditors. Show your marketing strategy, financial projections, sales forecast and other information. Prepare to use some assets as collateral, even if your lender likes your business plan. They need security for the amount they will consider to lend you.
Small business loans provide you with much needed financing for the growth of your company. However, you need to consider the above mentioned factors when it comes to determine the loan amount you get. We at Robookkeeper can provide you with first-rate bookkeeping services to keep your accounting books updated. You can reach us by email via [email protected].
