Business Financing For Small Business

In the Capitalist Economy that the vast majority of us operate under Financing of some sort is fueling everything everywhere. Whether it’s the U.S Government’s National Debt, Local Government Bond offerings, to Mega Corps like Apple and GE, eventually almost everyone may need access to capital through some form of financing. It makes perfect sense for small to mid-sized businesses to also access the capital markets responsibility to fund or expand their company’s.

As all business owners know, opening and running a business isn’t cheap.

When the current cash flow isn’t enough, owners of companies can turn to business financing options to get the funds that they need

Even when things are going great and business is really picking up or maybe even starting to boom.The company might want capital to fund things like consolidation competitors, location expansions, opening up new markets, new equipment purchases and seasonal inventory management.

Before a company seeks out Business Financing, it’s wise to know the goal of the funding. Is the goal the most common one which is long-term financing? Does the company need cash within days? Is the funding for refinancing debt or buying real estate? Please note just as not all Business Financing options operate the same. Please also note that each type of Business Financing option not only has its own range of turnaround times from application to payout, but some may also have rules on how the funding is spent.

Figuring out how much capital the business needs, how long of a repayment term is needed, and how the company is going to generate the revenue to back up the capital funded are the most crucial steps before seeking out Business Financing.

All lenders and investors will ask for a detailed list of reasons why the company needs the funding, how it will be used, and how the company plans to pay it back. Owners and operators seeking Business Financing should take their time to make certain their list is specific. For example: Is the company seeking the funds for expansion? Will there be hiring of employees? Then document the projected cost to hire and how much each employee will be paid.

Is the company purchasing equipment? Research what equipment is needed and an average cost to acquire that equipment including soft cost. Are the funds to refinance a loan? Then detail the cost to refinance the current debt and the cost savings of the new financing against the older debt. Is the company purchasing inventory and products in anticipation of a busy season? Then create a detailed list of the items that will be purchased and the estimated cost.

The first thought is to panic at the idea of creating all of these possible projections and it seems easier to just ask for as much money as possible. The companies that thrive by using Business Financing do so by only asking for the amount of capital the company will need. Once a company has taken the time to lock down it’s financial projections and estimated how much they will need and how the company will be able to pay it back. Then the Business Financing process will be easier time after time.

Using Debt Financing to fund a business once the loan or line of credit is paid back. Then the company’s relationship with the lender ends as they are not an equity partner. This is especially important as the business becomes more valuable and the owners may want to maintain full ownership.

The bank or non-bank lending institution has no control over how the owners operate their company, and as mentioned before it has no ownership. The only form of control that some Debt Financing Business Financing comes in the form covenants on how the funds may be allocated.

With Debt Financing to finance a Business the monthly payments, as well as the principal and interest breakdown of the payments, becomes an expense that can be accurately included in the company’s financial forecasting models.

Debt Financing products can be used to purchase assets, goods, raw materials, expand into new markets, and for the other flow of economic activities.

With Debt Financing products typically the interest that the Business pays is tax deductible as a business expense.

Now that we have gone over the Business Financing products that we provide access to for our clients. Each lender will have their own set of specifics, but the big four requirements that seem to matter most include. Having these stipulations in order will help companies increase their chances of being approved for Business Financing.

1. Time in business. Depending on the business financing product and the lender the time in business requirements may vary. For example Banks and non-bank lenders only offer Business Term Loans to companies with a minimum of two years in an existing business. Depending on which product a company is seeking out they need to confirm what the Time in Business requirements are.
2. Profitable Cash flow. Along with time in business, lenders like to see how much money the company has on hand to repay the debt. Healthy cash flow can be demonstrated with cash flow reports, financial statements, and even tax returns. Lenders will want to see sales figures, the payments coming into your business, and what you are spending – or the expense going out of your businesses.
3. Personal and Business Credit Credit scores. Both the company’s owners personal credit scores and the businesses credit score matter. However a newer business may not have much of a business credit history. Most lenders will expect to see a personal credit score of above 650 for most Business Financing products. For the best products lenders typically want to see personal credit scores over 700 + and business credit scores closest  to 100 points as possible.
4. Lenders will not just take a company’s word for it they will need to see actual information about your business. Additional paperwork needed may include:

• 1 to 2 Years Most Recent t Personal tax returns
• 1 to 2 Years Most Recent Business tax returns
• Min of the Last six months of business bank statements
• A Comprehensive Business plan
• 1 to 2 Years of Most Recent Financial Statements as well as Financial Forecast Statements
• Debt Schedule detailing the companies current outstanding debt
• Articles of incorporation, relevant licenses, and application certifications