Whether you’re a new business owner or a seasoned entrepreneur, you probably know that the odds are stacked against you when it comes to business success. The majority of new businesses fail, many of them within the first year. There are lots of reasons for this, but one of the most common reasons is a lack of cash flow.
If you can secure adequate business financing, you’re going to have a much easier time keeping your business afloat long-term. Do you need help getting business financing for your startup? Are you unsure of where to look or how to apply? If so, keep reading. Listed below are some tips that will make it easier for you to get the cash you need.
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Business Financing Options
Before you start applying for business financing, it’s important to know all the different options available to you. The following are some of the most common options for entrepreneurs who need to finance a startup:
SBA Loans
These are loans backed by the Small Business Administration. These loans often come with better repayment terms and lower interest rates than other business loans. The application process for them is much more rigorous, though.
SBA Microloans
Microloans are small loans also backed by the Small Business Administration. If you don’t qualify for a traditional SBA loan, an SBA microloan might be a good alternative.
Personal Loans
You can also use a personal loan to help keep your business afloat. Personal loans are easier to get than business loans in most cases. On the other hand, they’re usually for much smaller amounts.
Equipment Loans
If you need additional funding to purchase new equipment for your business, equipment loans are a good option. These loans are secured by the equipment itself, meaning the lender will take it away if you default.
Peer-To-Peer Loans
For those who have subpar credit scores and are struggling to get funding from a traditional lender, peer-to-peer lending can be a good alternative. Peer-to-peer lenders set their own loan terms and are often more flexible than banks and credit unions.
How to Apply for Financing
The specific application process you follow will vary depending on the type of loan for which you choose to apply. As a general rule, though, you’ll need to follow these steps to get the financing you need:
Prepare Your Business Plan
In most cases, you’ll need to provide a copy of your business plan when you apply for business financing. The lender will want to know why you need the money, how you plan to pay it back, and when you think your business will be profitable enough to pay it back. The more detailed your business plan is, the greater your chances of being approved.
Plan a Presentation
You may need to deliver a presentation explaining your plans for the money and how you intend to pay it back, too. If your lender requires a presentation, take your time putting one together.
Focus on providing all the information they might need. Work on explaining your business and your plans for the money in a clear, confident, and succinct way.
Gather Essential Documents
Make sure you have all your essential documents ready to go. In addition to your business plan, you’ll also need copies of your bank statements and tax returns. You may need a proof-of-collateral letter, too, depending on the type of loan for which you’re applying.
Apply Online or Arrange a Meeting
Now that you have everything you need, it’s time to go ahead and apply for your loan. Sometimes, you can apply for a loan online. If you’re planning to deliver a presentation, though, you’ll need to reach out and schedule a meeting with your lender.
Avoid Common Mistakes
You’ll need to take extra care when filling out your loan application if you want to get the money you need. Be sure to avoid these common mistakes, too:
Not Knowing Your Credit Score
It’s important to check your business and personal credit score and credit report before you apply for any kind of financing. This will help you know what kind of loans are available to you. It also gives you an opportunity to correct any mistakes that might be bringing your score down.
Not Reading the Fine Print
Be sure to read the loan agreement carefully before you sign anything. Know exactly what your interest rate is and when the loan needs to be repaid. If anything seems questionable or you don’t understand something, have your lawyer and/or your accountant look it over for you.
Asking for Too Much
If you ask for more money than you need, or ask for an amount that doesn’t make sense based on the valuation of your business, you’re going to be less likely to get approved. Be smart about the amount of money you request before you start applying for loans.
Making Major Financial Changes
Don’t make major financial changes right before applying for financing, either. This is a huge red flag for most lenders. Don’t run up a bunch of credit card debt, for example. This sends a message to lenders that your business might be unstable and you might be unable to repay the loan.
Applying When It’s Too Late
Don’t wait until your business is in financial trouble to apply for funding. If you apply for additional funding when your business is growing and things are looking good, you’ll be much more likely to get what you need than if you wait until you’re heavily in debt or are out of options.
Learn more about the signs that your business is in trouble. Lenders will be on the lookout for these signs and, if they notice them, they might be less likely to approve your loan application.
Get the Business Financing You Need Today
The idea of trying to secure business financing for your startup might seem daunting at first. There are lots of different approaches you can take to get the money needed to start your business or keep it afloat, though. Keep this information in mind as you begin your search to ensure you’re covering all your bases.