Securing capital to build and grow a business is one of the biggest obstacles entrepreneurs face. The good news is that lenders are always on the lookout for lucrative investments. The bad news is that the criteria traditional lenders use to determine what will become a profitable business excludes most small businesses and startups. Thankfully, there are still ways for businesses to secure funding.
1. Improve Personal Credit
The U.S. Small Business Administration encourages business owners to improve their personal credit histories and scores. As businesses grow and become more credit-worthy, banks rely less on personal credit histories and make decisions based on the business. In the early stages, businesses might not inspire this level of confidence in lenders, so they may insist on checking the owners’ credit histories and scores.
Here are some of the ways business owners can remedy this:
- Ask a colleague or family member with decent credit to share a credit account.
- Open a credit-builder loan account.
- Pay up or settle delinquent accounts.
- Dispute inaccuracies on credit reports.
2. Create a Solid Business Plan
In the past, lenders expected long, formal business plans detailing everything about the business that might sway them to offer funding. Today, lenders still expect a business plan, but the process is not always as formal. Some entrepreneurs have turned to PowerPoint presentations, five-minute videos or other creative avenues to detail their business plans.
Regardless of the method chosen, the lender will want to see supporting documentation. The SBA recommends focusing on the following:
- Marketing plan
- 12-month financial projections
3. Operate a Lean Business
Some businesses require big capital investments to get started. However, even these businesses can operate on a much smaller scale, as lean businesses. For example, a future restaurant owner could start with a food truck and a future hotelier could begin with Airbnbing out a mother-in-law suite. Whatever the final business goals, people who have trouble securing funding, start with a less capital-intensive version.
The SBA recommends two years of business operations before seeking a loan. In most cases, this timespan is enough for lenders to get a good picture of how well the business has progressed. Future projections might also be more accurate.
4. Work for Yourself
Sometimes, entrepreneurs need to hold on to a nine-to-five to pay the bills while the business grows. This helps to alleviate financial stress for the business, so owners can reinvest money into it. Unfortunately, over time, the nine-to-five can get in the way of growth. It’s easy to become complacent when the bills are paid and it keeps professionals from giving their full focus to the business.
Because of this, even alternative lenders often think twice about funding a business that does not employ the owner. This involves working at least part-time for the business and drawing an appropriate salary. Hands-on managers tend to grow businesses faster, catch potential problems quicker and pivot more effectively.
5. Consider Appropriate Loan Types
There are many different types of business loans. Do some research to see which ones the business might qualify for more easily. Note that lenders provide loans for different reasons and expect business owners to use them for the intended purpose. Failure to do so may lead to the lender recalling the loan. Common loan types to consider include working capital loans, equipment loans and general business loans.
When making a loan decision, owners should also consider the business’s finances. Sadly, there are some predatory lenders who secure loans with businesses they know are viable. They then offer large loans the business cannot afford and wait for the opportunity to seize the business.
Make an independent financial assessment of what the business can afford. Then, choose a trustworthy lender and shop around for the best offer within that budget. State Your Funding is accepting loan applications. Contact us to submit yours today.
Securing funding for a small business is not always easy. Use these tips to improve your chances. Then, submit a loan application to State Your Funding.
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