Hospitality
Business Loans

It’s easier for existing businesses to get funding than start-ups. You have a proven track record to shower lenders, and can predict cash flows and possible cash flow gaps. Banks like to see several years of tax returns and financial statements, too. 

Existing business owners have the required financial history to qualify for a bank loan – assuming that revenue and cash flows have been solid. Even an unprofitable business, or one that struggled during 2020, can borrow if it has enough cash receipts and a business plan for recovery. But if you’ve struggled with cash flow and possibly missed a few payments, your best option is to find an alternative lender who understands your business. 

Small business owners who are just starting out have different funding needs. Lenders could ask you to pledge personal assets – such as investment or retirement accounts – to secure a loan. And some lenders refuse to work with borrowers who have less than two years of business history, so you’ll want to approach a lender you know is open to working with you.

The stage or your business life cycle often helps you decide which lenders to approach.

Maybe you need access to funds for working capital needs – to make payroll or pay rent during a slow period. Or, you need a large sum to acquire another company. Each need would direct you towards a different loan – in the first instance, a working capital loan or a line of credit, in the second a large business loan. 

Lenders offer loans for varying amounts and with different repayment terms. The right loan for a short-term need is not the right choice for an acquisition. Knowing why you plan on borrowing can direct you to the right lender.

Regardless of your plans for the borrowed capital, and their success, you will have to make payments on the loan. Typically, those payments come due before your plan’s completion, and before it begins generating revenues. 

Before borrowing, ask yourself if your business’s cash flows are enough to make loan payments and still meet your other obligations. Add up your fixed expenses – like rent, utilities, and payroll – and determine how much free cash flow you have each month. If it’s not enough to cover the payment reconsider borrowing or borrow less. 

A loan payment consists of a portion of the amount borrowed plus interest and fees, spread over the repayment term. Therefore, borrowing less reduces your monthly payments since it would reduce the base on your loan payment, and the amount on which a lender charges interest.

Your ad agency’s cash flows must cover the loan payments – particularly if there is a delay between cash outflows and inflows. Make a budget before borrowing and include a plan to pay back the loan. 

How long do you plan on using the loan’s funds? For large scale capital investments, the loan’s term should end close to when the project is complete. It’s important to know how long your project will take, or how long you’ll need to use the money, before you apply for a loan. 

The lender selects a loan repayment term, and traditional banks often have established periods of two to five years for small business loans. With alternative lenders, you can borrow for just a few months.  Since the repayment happens over a more concentrated timeframe, you’ll have a higher loan payment. 

It’s inadvisable to still be making payments on a loan when you’re no longer receiving the benefits of what it funded. After determining why you plan on borrowing, and how much you need to borrow, establish a project timeline and know how long you’ll need to use the loan’s capital. In some cases, a short-term loan is your best choice and you might want to approach an alternative lender.  

Your credit score and business’ credit history are an important part of any loan application. Lenders view a credit score as a sign of your creditworthiness, and it will impact their willingness to lend to you and the loan’s terms. Small business owners with poor credit will find it harder to borrow because lenders view them as a bigger risk. 

Before applying for a loan, check your credit score. Knowing it will give you an idea of the interest rate you’ll pay to borrow and which lenders will lend to you. Since a lower credit score reflects higher risk to the lender, you’ll pay more to borrow.