Each business encounters serious problems that concern cash flow at any given point. This may necessitate the need to borrow funds to sustain business operations. For the startups, financial problems are likely to come knocking at your door as early as possible.
It is now possible for small enterprises to finance their projects and operations as there are several avenues to turn to for financial support. It is important to note that finding a reputable lender is no longer difficult the way it used to be. There are direct debit bureaus and bank loans.
Types of loans
There are also loan packages that are offered by the government agencies that attract several borrowers as they come with a guarantee, which certain lenders cannot. Availability of more than a single option is a good sign that business owners should evaluate their needs to determine the best type of loan for them.
Long-term vs. Short-term
These are the two basic kinds of loans, which are available to small business owners. Long-established, reputable commercial lenders provide long-term loans with low interest rates. This is because the amount they dispatch is large enough to cover the expenses. They can provide you with a loan amount to acquire another business. On the other hand, small businesses that want working capital can approach these lenders. They will need to provide a formidable business plan for the loan amount to be approved.
Short term loans are offered by both banking institutions and credit unions. Whereas long-term loans must be paid through monthly installments, short-term loans are settled at the end of the term. The interest charged is higher as compared to long-term loans. Retailers in need for additional funding to complete a short project can benefit from these types of loans.
Other than conventional sources of funding, business owners can choose alternative lending options. Nowadays, it is quite easy to apply for a loan as it can be done online. In fact, offers are now easy to process. It is quite easy to access capital without much difficulty that you have to undergo when seeking loans from traditional funding sources.
The good thing about alternative options is that they work best to meet your business needs such as expansion and even sustaining operations whenever there are cash shortfalls. On the other hand, small businesses, which are in early stages of operations find it quite difficult to meet the stringent requirements.
A bad credit history dents the credit rating of an individual as well as a business. This may hurt the relationship between an account holder and the lender. The business environment is very dynamic and volatile especially for small businesses which may leave these businesses as the risk of closure or financial instability. However, a prudent entrepreneur who is servicing a small business loan can avoid defaulting the loan payments through the following ways;
The business owner should under the various debts owed by the business. This allows them to make timely payments to the creditors. Prioritizing debts will assist to better manage the financial status of the business in a prudent and responsible manner while at the same time maintaining sufficient funds for working capital within the business. Moreover, in a bid to maintain a good rapport with the business’ main lenders, it is appropriate to clear their loans beforehand to ensure that you don’t face strict consequences on default that may damage the creditworthiness of the business entity and that of the individual.
Talk to the lender
Temporary financial setbacks are very common, especially where the company is not paid promptly. Therefore, instead of assuming the repayment of the business loan, it is advisable to approach the lender and request them to lower the monthly repayment amounts in a way to accommodate a better affordable repayment schedule. Lenders are very understanding and will give advice on how to progress with the loan repayment.
Short term business debt may slow down the business’ momentum due to the shortage of working capital. Therefore, business owners have the option to refinance their existing credit facility such that the existing debt is bought off. During the refinancing period, the business owner can opt to take a huge sum that ensures that he or she repays all existing credit lenders such that they remain with a single running loan that has well spaced affordable installments.
Cut on expenditure
Simple accounting calculations may reveal whether the financial health of the business is reliable or not. Therefore, where information reveals that the business is running into profits hence cannot be in a position to support its debts it is advisable to practice cutting costs on certain business functions to ensure that the business is sustainable and survives the hard financial times. Taking a thorough look at where most expenditure occurs in business and cutting off unreliable and unprofitable business peripheral business may assist to stabilize the business making it financially stable to repay the outstanding loans. Click here for more information on business loans bad credit.