If you’re planning to start a business, securing financing is vital – it could be what makes the difference between not only success and failure, but launching at all. Plus, if you’ve already got a business and you’re planning to expand it, the same thing is true; you’re going to need the money to do it.
Sounds easy, doesn’t it? You have an idea, you get some money, and you get going. Of course, that’s not how it works, and there’s a lot more to think about and do, which can be daunting for many people. The good news is, once you’ve got a better idea of what to do, it all starts to get a lot simpler. With that in mind, here are some useful tips on how to secure financing for your business. Read on to find out more.
What Are The Financing Options?
The first step when it comes to securing financing for your business is to understand the various options that might be open to you – there are a few different solutions, from traditional bank loads to alternative funding sources, and each one comes with its own set of pros and cons.
Traditional bank loans will generally give you fair or even low-interest rates, and you can often choose a long repayment time as well, making the loan a lot more affordable, which is ideal for a small business. However, if you stretch the loan out, that means you’ll end up paying more interest, so it’s an expensive way to go about things, plus there are some strict eligibility criteria, a long application process, and you might need to put up some collateral too, so it’s not going to be for everyone.
Next you could look at Small Business Administration (SBA) loans. These are for US businesses and they’re guaranteed by the US Small Business Administration, which again means lower interest rates and lower down payments. However, just like with a traditional bank loan, the eligibility criteria and the documentation needed might make it hard for new startups to access the money.
So perhaps you’ll think about alternatives, which could include angel investors, for example. You can get a lot of money from angel investors, and on top of the cash, you can also make use of their connections and expertise, so it’s often a choice business owners like. What they don’t like is having to give up some equity in the business, and losing that level of control might not be considered worth the money.
What about crowdfunding then? Crowdfunding platforms allow businesses to raise money from a lot of individual people rather than just one, and although it can work well, you must market it effectively, or no one will ever know you’re there to invest in.
As you can see, making this first choice is crucial as you won’t be able to take any more steps until you do.
What Do You Need?
Once you know where you want to get the money from, you’ll need to think about your business’s financial needs so you can ask for the right amount – pulling a figure out of the air isn’t helpful as you might end up with too much and therefore pay a lot of interest, or you might not have enough, and then you’ll have to go back to ask for more, which might be difficult to get.
It really depends where your business is in its journey as to how much you’ll need, as well as what your plans are, so it’s going to be an individual determination, but there are some things you should include in your calculations, including startup costs. How much is it going to cost to launch the business in the first place? Then you’ll need to work out how much working capital you’ll need to cover day-to-day expenses like rent, payroll, utilities, and stock (and how long you’ll need to use financing to pay for these things). Then, if you’re an existing company that wants to expand, you’ll need to work out how much it’s going to cost to do that, which could include opening new locations or boosting your marketing. So there’s plenty to think about, and it’s best to spend time working out how much money you need to borrow because a mistake could have dire consequences.
Prepare Your Financial Documents
Before you can go to any lenders or investors, it’s crucial to have all the necessary documents and paperwork together – there’s no point starting your application and then having to leave things partway through to go and search for what you need. It’s much better to have it all (and perhaps more than you think you might need, just to be on the safe side) with you when you start applying, as you’ll find the process is a lot quicker and less stressful.
So we’ve mentioned paperwork and documents, but what exactly is it you need? Well, one thing you’ll certainly need is your business plan, which includes your mission statement, market analysis, information about competitors, and your financial projections – no one is going to lend to you without being able to see this. You’ll also need to have accurate and up-to-date income statements, balance sheets, cash flow statements, and anything else to show your business’s financial state and health. If you’ve been in business long enough to file a tax return (or more than one), you’ll need that as well, as it’s a great way to verify your income.
On top of this, depending on what type of lender or investment you’re looking for, you might need to provide some collateral information as well. This could include a quitclaim deed form, titles, deeds, and any other documentation that relates to the asset you’re putting up as collateral. This all shows you’re serious about paying the money back, and it gives lenders the confidence that they’ll be repaid no matter what.
Final Thoughts
Securing financing for your business isn’t an easy process, and it’s not meant to be. You need to think hard about what you’re doing, why you’re doing it, and what you want the end result to be, and only then will you be ready to find your money.
