Looking for a loan for your business? What is the best way and timing of obtaining a favorable loan or a loan in general?
Conundrum
The best time to seek a loan is when you are not desperate to obtain a loan. Ironically, when you are looking for a loan is probably the time when you need it the most. The reason is because a lender is in the business of writing loans, collecting interest and principal, and making a profit. If your business isn’t in the best shape financially, then you are more of a risk to a lender.
Timing
If you have any notions of needing a loan in the future, then look for one now while you are in better financial shape. For example, let’s say you are looking to expand your business and need additional capital. Do not wait until you have used up all of your resources before trying to obtain a loan. Many times, easy sources of credit, such as credit cards, are tapped first, which can ultimately hurt your credit score if you max them out, which further reduces your chance of obtaining a favorable loan. Furthermore, as you expand, your expenses go up dramatically, which decreases the profitability you have to present to lenders.
Credit Score
To expand on the timing issue, business lenders will look at your personal credit score to see if you are a good credit risk. It’s best to obtain a loan when your credit score is at a high level and your debts are reasonable.
Business Finances
Is your business profitable right now? If so, then you are a much better risk to a lender. Do not wait until you experience a significant downturn to start looking for a loan.
Conclusion
To sum it all up, obtain a loan, or even a line of credit when you don’t need one and are in a healthy financial position. This way, you will be considered a favorable risk to lenders.
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