Outside capital can be an amazing way to grow your business quickly. An influx of cash can open doors that didn’t exist before and present you with wonderful opportunities. But only if you qualify for a good rate!
Poor credit and financial habits can make lenders skeptical. If they decide to give you a loan at all, the terms will be abysmal and your dream of business growth will be shackled down by large loan payments. Payments that may keep you from the opportunities you seek.
Fortunately, there are things you can do to improve your financial standing. The four tactics listed in this blog will help you present your business to lenders in an appealing way. Once you implement them, you’ll have a much better chance of securing a great business loan with a low-interest rate.
Interested? Great, let’s dive in!
1: Manage Your Long Form Report
First, you need to check, monitor, and (if necessary) correct your long-form report. If that last sentence completely confused you, fear not. According to Investopedia, a long form report is simply a “detailed report of an individual’s credit history prepared by a credit bureau.”
Basically, it’s when a third party looks at your company’s financials and documents their findings. And this report is very heavily considered when business loan rates are calculated. Making sure yours is accurate and optimized is essential!
This is a process you can embark on yourself. But for the vast majority of businesses, we recommend they find a knowledgeable professional to help them wade through the legalese and amend their report accurately.
Why? Because it’s really easy to make mistakes!
Fortunately, there are companies, like Cast Capital, that are able to provide credit restoration services. We’ve found that 90% of our clients have inconsistencies in their long form credit reports. Inconsistencies that lower their credit scores by an average of 30 points. We have a strong history of rectifying this for our clients.
2: Keep Your Account Positive
This will probably seem obvious, but it’s another very important factor when qualifying for a business loan. We’ve also seen too many business owners neglect this bit of advice for us to not mention it here.
You need to make sure your bank accounts never drop below zero. A negative balance spells risk to investors. After all, you can’t repay loans with an empty bank account. And higher risk means higher rates and more interest accrued.
So what’s the solution? The key is planning your spending and expenses around your revenue cycle. Admittedly, this will take forethought. When bills are due and invoices have yet to be paid, negative balances may seem unavoidable.
To combat this, do your best to put away an emergency fund. Set aside money to pull you through the lean times without having to dip below zero in your bank account.
3: Deposit Cash Regularly
Do you ever let multiple checks stack up on your desk before you deposit them? Come on, we’ve all been guilty of this before. We think we’re being efficient, making only one bank run for multiple checks and saving extra time.
But, in truth, it’s actually hurting your ability to get a good rate on your next business loan. Underwriters determine the rate for a loan based on the history and behavior of a company’s revenue and credit. Specifically, the more frequent and sizeable the deposits, the better. In fact, frequency and size are the two most important factors.
And it makes sense, doesn’t it? Frequent and sizeable deposits spell less risk for lenders. It shows a strong history of positive cash flow and underwriters can be confident that, due to the frequency of a businesses deposits, a slow sales month won’t prohibit a company’s ability to make loan payments.
Remember, lenders only lend money to businesses when they believe they’ll see that money return. The best way to earn lower rates is to prove that you’re reliable and “good for it” so to speak. Frequent deposits will help you sell that narrative.
4: Know Your Finances
Finally, one of the best ways to qualify for a better business loan is to know your finances.
Become intimate with your company’s financial documents such as tax returns, profit and loss statements, bank statements and credit card statements. Keep them organized and easily accessible.
More than that, as a small business owner, you need to know your numbers like the back of your hand. Cost of goods sold, margins, expenses.
Not only will this information help you make a better case when applying for a loan, but you’ll also be able to make better business decisions in general. Decisions that will help you appear less risky in the eyes of an underwriter.
Commit to Your Company’s Financial Success
A better business loan is achievable for your company! Lower rates are within your grasp if you’re willing to make a few changes and do what’s necessary. Any sacrifice you make will be worth it — especially when you see how much money a low rate can save you.
If you’re ready to qualify for a lower rate on your next business loan, just follow the four steps we outlined in this post.
First; check, monitor and (if needed) correct your long-form report. Also, make sure that your bank account never dips below zero. Secret away an emergency fund to use when capital is low and bills are due.
Then get in the habit of depositing checks as soon as you receive them. Frequent deposits help spell less risk for lenders and the practice is a great way to secure a better loan rate. And finally, know your numbers!
Follow these four tips and you’re sure to start qualifying for lower rates and better loan terms. If you need help with any step in the process, get in contact with us. We’re happy to help.