If you are a business owner, you have probably noticed that the lending landscape has changed. In the last few years, especially since the recession, U.S. banks have moved away from commercial loans, particularly those for small- and medium-sized companies.
For a business owner to obtain a bank loan, among other requirements, he or she must have been in business for at least two to five years; show proof of credit in good standing; demonstrate a positive balance in the company’s bank account; and, sometimes even submit the latest tax filings for the company.
This left a vacancy in the lending market that was eventually filled by tech companies such as One Park Financial, which offer loans to small and medium-sized companies in record time—sometimes within hours—and with far fewer documentary requirements from entrepreneurs in need of capital injections to their businesses.
If you are a small- or medium-sized business owner thinking about borrowing money, there are several things you should keep in mind:
• Can you fund a business with your own money (savings, family, friends)? • If you have good credit, can you use a personal credit card? • If you decide to take out a loan, can you pay it back on time?
In any one of these cases, you must consider the likelihood of the business succeeding, and the likely return on investment.
Otherwise, in the first case, you are at risk of losing your savings. In the second case, if the business fails, you may ruin your personal credit. In case number three, if you decide to borrow money and cannot pay it back, there are long term financial and credit consequences.
History has taught business lenders, such as One Park Financial, that many business owners are hesitant to inject capital when the business is successful. But, at times, it is good to maintain a reserve or backup that may help cover expenses during an unexpected downturn. Think of it as health insurance, you hope you're going to stay well but need to be covered in the event of an illness. The interest rate on the loan is a small price to pay to have the money when you need it.
Another factor to consider when lending to a business is the financial strategy. Unlike the business plan, which is a detailed explanation of the objectives of the business and the measures to fulfill them, the financial plan is a document that outlines and forecasts the income and expenditure estimates per month and allows a business to anticipate its cash flow for the coming term.
Consequently, when starting a new business (or funding an old one,) a business owner should pay close attention to the anticipated expenses and understand that running out of money is a real possibility, regardless of the company’s success, and it may happen sooner rather than later.