Small Business Owners: 10 Tips For Finding Funding
Starting a business is no easy task, and one of the biggest challenges you’ll face is getting the funding you need to get your business off the ground. There are several ways in seeking funding for your business, but it can be tricky to know where to start.
That’s why we’ve put together this list of 10 tips for small business owners looking for funding. Keep these in mind as you navigate the funding process, and you’ll be on your way to securing the money your business needs!
Importance of Business Financing
To thrive, small businesses need to reinvest earnings back into the business for growth. This reinvestment might come from new equipment, inventory, marketing, or hiring additional staff. Whatever the case may be, small businesses need financing to grow.
There are a few ways to acquire small business funding: through personal savings, loans from family and friends, small business loans, online lenders, business credit cards, loans from the Small Business Administration (SBA), venture capital, accounts receivable financing, or any other form of equity financing wherein you pay interest for the money you borrow.
Tips When Seeking Funding
As a business owner, you must understand the ins and outs of business financing before seeking funding for your business. Here are a few tips to keep in mind:
1. Know how much funding you need
Before approaching potential lenders, you must clearly know how much money your business needs. This will help you determine which type of funding is right for you because each financing solution has different requirements.
For instance, small business loan amounts typically start at $500, while SBA loans can go up to millions of dollars. Determining the amount you need is one step in securing the right type of funding.
2. Create a business plan
A business plan is essential for any business seeking funding regardless of your business line. This document outlines your business goals, strategies, and how you plan on achieving them. Lenders will want to see your business plan to understand your business’s potential.
If you don’t have a business plan, many resources are available to help you create one. The SBA has templates and tools on its website, or you can consult with a business coach or consultant.
3. Choose the right lender
There are many types of lenders out there, so it’s essential to choose the one that’s right for your business. Each lender has different requirements, so it’s essential to do your research before selecting one.
For example, women-owned businesses have a range of business lenders that focus on financing for this demographic. Online lenders, community banks, and credit unions also offer business loans.
4. Be prepared to give collateral
Collateral is an asset that you pledge as security for a loan. The lender can seize your collateral if you can’t repay the loan. For small business loans, common forms of collateral are business assets such as equipment, accounts receivable, or inventory.
Some lenders may also require a personal guarantee, a pledge from the business owner to repay the loan out of their assets if the business can’t repay it.
5. Have a strong credit score
Your credit score is one factor that lenders will consider when approving your loan. A strong credit score signals to lenders that you’re a low-risk borrower, which increases your chances of getting approved for financing. You can check your business credit score for free on Nav.
If your business doesn’t have a credit history, you can build business credit by opening a business credit card or taking out a business line of credit. This way, your business will be deemed as a separate entity from you, and your business credit score will begin to build.
6. Diversify your financing options
Don’t put all your eggs in one basket regarding business financing. Diversifying your financing options gives you more flexibility and makes it less likely that one funding source will dry up and leave you high and dry.
For example, you can have a business credit card for short-term expenses, a business line of credit for medium-term needs, and a small business loan for long-term investments. This way, you’re not as reliant on any one type of financing.
7. Have realistic financial projections
Your business’s financial projections are another key factor that lenders will consider when approving your loan. They want to see that you clearly understand your business’s financial situation and that you’re projecting realistic numbers.
Creating financial projections can be tricky, so it’s advisable to consult with an accountant or business consultant to help you out.
8. Keep detailed records
Lenders will want to see your business’s financial records to understand your business’s historical performance. This can include tax returns, profit and loss statements, balance sheets, and cash flow statements.
Keeping detailed records is also essential because it will help you track your business’s progress over time and make more informed decisions about where to allocate its resources.
9. Understand your business’s financial situation
You need to clearly understand your business’s financial situation before you can start looking for financing. This means knowing your business’s revenue, expenses, profitability, and cash flow.
If you don’t have a good handle on your business’s finances, getting approved for a loan will be difficult. You can consult with an accountant or business consultant to help you get a better understanding of your business’s financial situation.
10. Have adequate cash flow
Your business’s cash flow is the money coming in and going out of your business. Lenders will want to see that you have enough cash flow to cover your business expenses and repay your loan.
You can improve your business’s cash flow by invoicing promptly, collecting payments quickly, and managing your inventory effectively.
11. Be prepared to answer questions about your business
Lenders will want to know about your business’s products or services, target market, competitive landscape, and growth potential.
When you meet with a lender, you should be prepared to answer these questions. Being able to articulately and confidently speak about your business will increase your chances of getting approved for financing.
12. Be patient
Getting approved for business financing can take time, so you need to be patient. Don’t get discouraged if you don’t get approved for a loan immediately.
Keep meeting with different lenders and working on improving your business’s financial situation. Eventually, you’ll find a lender willing to give you the financing you need.
By following these tips, you’ll be well on your way to securing the business funding you need to grow your business. Remember to be patient and keep detailed records of your business’s financials will give you a clear picture of your progress over time and help inform future decision-making. If you understand your business’s financial situation and can articulate a clear growth plan, you’ll be in a much better position to get approved for financing.
One final tip: don’t forget to shop for the best rates and terms from different lenders. Just because one lender denies your loan doesn’t mean all of them will. By comparing offers, you’re sure to find the best financing solution for your business.
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“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”