If you are considering a loan, here are four factors to consider.
1. Know your credit score. If you’re applying for a loan with a traditional lender, your credit score is one of the main factors that will be considered. So, before you contact any bank, know your numbers. Request a personal credit report. Check for errors, such as a payment you made on time but was reported as late. If you find a mistake, contact the credit bureau and company involved to resolve the issue.
If you have a high credit score (generally speaking, above 700), you stand a better chance of getting a loan with an attractive interest rate. If you have a mid-level score (600 to 700), you may be able to secure a loan but at a higher interest rate. And if your score is low (below 600), it may be difficult to get approved for a loan.
2. Understand your options. Lenders vary from the traditional (banks and credit unions) to the nontraditional. Research your options to make an informed decision.
3. Know what you need. If you’re not sure how much cash your company needs to operate or expand, meet with an adviser or an accountant before approaching any lenders. Be prepared to supply documentation and to answer lenders’ questions about your finances, business model, and future plans. Also be ready to discuss how the loan will be used.
4. Recognize the process. If you are turned down due to poor credit, you can take time to improve your credit score and then seek a loan at a later date.
Want more? See The Five C’s of Credit.