Sooner or later, a growing business is going to need a fresh input of cash to expand. Growth is not going to happen without it. You will need to hire more staff, possibly move to a new location or build, and get more equipment and supplies. If you have already made a serious load of cash, you may not need to get a business loan. Otherwise, there are some steps you need to take to ensure you are ready to apply for it.
Get Ready to Apply for the Loan
Getting money for your business will take some preparation. It is harder to get a loan now because of the pandemic, but it is possible. The good news is that it is easier to get a loan to expand your business than it is to start one. Having your paperwork ready and in order will speed up the process. It may even be possible to get one without having to provide a percentage of the money you want to borrow.
You will need to show the lender, through your paperwork, that your business really is a success. You will need copies of your financial statements, articles of incorporation, your business license, and insurance coverage. It is also necessary to describe fully how you plan on using the money. This should be included in a business plan that is updated to reveal your intentions.
Consider Your Debt-to-Credit Ratio
Whenever you apply for any loan, you can be sure that a lender will look at your current debt. You can expect that the less debt you have the more likely you are to get an expansion loan. Your debt-to-credit ratio needs to be less than 30%, but less than 20% will make a loan more likely. If your debt is higher than 30%, you would be better off paying down some of the debt before applying for a loan. At the same time, check your business credit score. It will range from 0 to 100, but a personal credit score can go up to 850. If your score is low, take the time to build it higher to make getting a loan possible.
Show Why You Need the Loan
You will need to show why it is a good time to expand now. One good reason is if you have reached the maximum output level of your products and the demand continues to increase. In that case, you can hire more employees or buy new equipment that would enable a greater rate of production.
Ensure You Have a Good Cash Flow
Another thing you need to be sure of when applying for a business loan is your cash flow. A lender will be sure to look at it to decide if you can comfortably make the payments to pay back the loan. They like to know that you have a cash flow that is sufficiently higher than your loan payment.
Consider Your Lender Options
If you already do business with a particular bank or lender, you may want to try them first. They already have some of the records needed and they already know you. If you need to choose a lender, you should look into one that is backed by the Small Business Administration (SBA). Other options may include an online lender, which is usually able to process your loan faster and will require less paperwork. They may also be a better choice if you have less than ideal credit. Angel investors may be another possibility.