What will I need to do to borrow money for my business?
What to look out for
- Red Can you afford to repay the debt from your day-to-day operations
- Amber Lenders will review your past credit history and profile
- Green Understanding your requirements will improve the chances of securing credit
Some of the world’s most successful businesses rely on credit and borrow money to capitalise on an opportunity. What will lenders want to you know about you?
Why borrow money for my business?
Businesses borrow money for all sorts of reasons. But how about it can be good for your cash flow? Being able to buy materials from your suppliers to produce more products, generate more sales and, ultimately, more profit is a good starting point.
That all adds up to getting a business off the ground more quickly or expanding faster when you may not have the cash in the business to fund that growth.
Borrowing money or using credit is not all about getting a big order over the line, you may need to boost your day-to-day activity to deal with a temporary setback or fund a longer-term strategic project.
What does the word credit mean?
When used in a business context, credit is the process of (i) one party making funds available to a business with the expectation that these funds are repaid in full and with some form of interest payments being the profit for taking the risk and (b) extending payment terms for goods or services provided, allowing the business to benefit from the use of the good or service while repaying the cost of this over a period of time.
Credit is an ancient form of business process and the word is derived from the Latin word ‘believe’, as in the lender needs to believe that you will give them their money back!
Is it normal for businesses to borrow money?
Many of the most successful business in the world rely on some form of credit to help increase their capacity and opportunity.
What will I need to do to obtain credit for my business?
Obtaining credit usually a requires a mixture of several elements.
Will you repay the credit?
Firstly, the lender needs to satisfy themselves that the borrower will repay the credit extended to them, lenders do this by reviewing your past credit history and accessing your credit profile. This shows if you have had a good history of repaying credit.
Do you have enough cash?
Secondly, the lender will want to ensure that you currently have enough spare cash in the business to repay the credit. They refer to this as ‘affordability’, or whether you can afford to repay the debt from your day-to-day operations.
What do you want the money for?
Thirdly, the lender may want to know what it is that you want the credit for. Understanding your requirements will help them judge whether it seems like a sound decision for them to extend this credit to you.
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