When it comes to financing your business, there are plenty of options out there, and you’ll likely be given more than enough advice. With so much information flying around, though, it can be hard to sort through it all and make a decision on what’s best for you and your business—especially if it’s your first time looking into business financing options. There are a lot of myths and rumors when it comes to business financing, and if you aren’t familiar with it already, it’s easy to take those myths as truth. For example, many people think that if their business is new, they can’t get the financing they need, or if they have bad credit, they won’t qualify.
While the age of your business will be a factor that lenders consider, and your credit score will be taken into account, neither will automatically disqualify you from getting the financing that you need. There is other information you’ll be given by other entrepreneurs as well, like, “It’s too risky to take on debt when you’re just starting out,” but sometimes that debt and financing can be the difference between barely surviving and thriving.
If you’re new to business financing and are having a hard time sorting through all of the information that’s out there, here are five facts that can help you better understand it all:
Many entrepreneurs and business owners will turn to banks and credit unions when they want to take out a loan to start or boost their business. While both banks and credit unions offer pros (and cons), they are often mistaken as the best or one of the only sources of financing. Sometimes, first-time applicants will panic if their loan application is rejected by a bank or credit union and wonder what their options are.
Luckily, banks and credit unions aren’t the only options at all—in fact, they may not even be the best option for you. And there’s nothing that says you have to take out a loan to finance your business. Other options like crowdfunding, investors, bootstrapping, and the SBA are all viable financing options that can help you fund your business.
Re-investing means that you take the profits from an investment and put some of these profits back into the same investment. When you start your business, you make an initial investment, and as it grows, you will begin to profit. While there are likely a hundred different ways you could use that money, it’s a good idea to re-invest at least some of it. While the amount you choose to re-invest is completely up to you, some recommend re-investing at least 50 percent—re-investing in your business is a way that you can kind of self-finance, keep things running smoothly, and propel your growth.
When you go to apply for a loan or approach a lender for an investment of some sort, they’re going to want to know what’s in it for them. You may have your business plan perfectly outlined, your financials all in order, and a perfect credit score, but if you don’t make it clear what’s in it for your lender or investor, they may not be interested in giving you financing. While you don’t need to offer them a new car or a stake in the company to get them to invest, making sure they know they’ll get their money back with interest within a certain amount of time or letting them know what’s in it for them some other way will help.
When you go to apply for financing, it’s important to be aware that your personal information and your credit score will factor in. Lenders don’t strictly look at the business side of things—they’ll want to see your work history, your financials, be made aware of any outstanding debts you have, check on your personal and business credit, and ask other questions that may seem like they’re too personal to apply to a business loan application. The better your lender gets to know you, the more confident they’ll be in making their decision to accept or deny your application.
Getting a small business loan can take a lot of things, and one of those things is time. It’s important to start the application process to get the financing you need as soon as possible to help you get the funding on time, but the good news is that getting a business loan doesn’t always take as long as you might think. With today’s technology, including the ability to do background checks and sort through data almost instantly, the approval process is much shorter than it used to be. It still does take time, though, so don’t expect to get your funds right after you apply.
There is a lot of information out there about business financing that can be confusing for beginners. With different advice being thrown your way, and tons of different options to sift through, it can be difficult to figure it all out. However, if you have any questions about the loans that are available, the application process, or time frames, you can contact us today as we would be happy to go over the information that you need.