Applying for a large business loan with a weak credit score can become one of the most disappointing decisions you’ll ever make in your life – especially if you’ve just started a company and the interest rate offers on the table are more than you can afford to pay back.
However, taking smaller loans today and paying them back in time can qualify you for much bigger, less expensive loans in the future when you’re ready to grow your business.
Want to know how you can graduate from small personal loans to larger business loans with better interest rates down the line? There tips will help you find less expensive financing options in the future that are ideal for your business’ needs.
Taking Loans Will Make You an Ideal Borrower
Whether you have an established business or are in the process of starting one, a loan could be beneficial for your company’s growth in the future. Furthermore, the loan your business qualifies for today can boost your reputation as the ideal borrower in the lenders’ eyes in the future. But a loan that isn’t used and returned responsibility can be counterproductive to your efforts and lower your credit score.
If you already have a less-than-ideal credit score, you may qualify for an expensive loan in the short-term but paying back your debt responsibly will eventually boost your credit ratings in case you need a bigger loan at better terms in the future.
Step 1: Have a Consistent Business
Having a consistent business will build trust among potential lenders who will be willing to qualify you for a loan more easily if your company is in a good financial standing.
Banks prefer giving loans to companies that have been in business for longer since it proves that they have the ability to adapt to the highs and the lows of the industry and withstand the ever-changing market environment. The bottom line? Try to stay in business for as long as possible.
Step 2: Pay Back on Time
The most important step towards building an immaculate credit score is making the loan payments on time and establishing yourself as a reliable borrower who can be trusted with larger loans.
Borrowers with a track record of timely payments often qualify for bigger loans in the future with more attractive lending terms. Apart from a perfect credit score, a well-padded bank balance also helps in convincing lenders that you are in a good financial position for paying back your debt.
Step 3: Monitor Your Credit Score
If you’re trying to boost your credit standing by making timely loan repayments, keep a close eye on your credit score as it slowly goes up with time. If you see any fluctuations in the progress, there could be a chance that an error has been made in your credit report.
This happens to borrowers more than just occasionally, and it could definitely happen to you if you don’t keep a watchful eye on your credit reports.
Step 4: Adhere to Terms of Agreement
Making your loan payments in full every month isn’t enough to boost your credit score, you also need to adhere to your lender’s terms of agreement such as paying back one loan in full before applying for another one, not using the borrowed funds for any unqualified purchases, etc. Make sure you read and understand the terms of agreement for a loan before signing your name on the dotted line.
Step 5: Consider Refinancing
Once you’ve paid back your current loan and upgraded your credit score, you could now graduate to a bigger loan at better interest rates that could be beneficial for your business.
Responsible repayment of all previous loans is the first indication that you’re ready to take your borrowing game to the next level. But even if you have outstanding loan, you can get approved for another loan with even better terms and features through a refinancing option.
If you already have a great credit score and well-padded bank account, you can afford to be picky when choosing the right lender for a refinancing solution. Scrutinizing the lender and terms of agreement will help you determine if the loan will benefit your business – but no matter which stage of borrowing you are on, it is important that you use borrowed funds responsibly and make timely loan payment.