If you are a small to mid-size business and have been in business for at least one year the climate is improving for you to obtain financing. A business with a descent credit score, it doesn’t have to be high, as long as you are paying your bills, haven’t filed bankruptcy and aren’t in debt over your head you may qualify for financing. Many new avenues of business financing have become available depending on your particular needs.
The first step is to isolate the reason you need business financing and the amount? It may be fore capital expenditures, examples office furniture, automobiles, or equipment. Explore possibilities with your supplier about available financing. Most of these suppliers have agreements with their lenders, but they have easier terms of approval as a lot of time the supplier has to guarantee to repurchase the loan if you default. If the supplier wants the sale, they arrange the financing.
Let’s say you need accounts receivable financing and your bank will not approve you or does not offer this as a service. There a lot of private accounts receivable factoring businesses that will advance the funds to you, at a higher interest rate, but still with interest being so low today it will not make much difference.
You may need funds to expand or add jobs, to stay in business and continue to pay employees. There are a lot government funds and grants available, local and federal government continue to add new programs all the time to assist small businesses. The recent Small Business Act just came into affect and recently individual states such as North Carolina, Michigan and Kentucky are offering state guaranteed small business loans. Even the local banks have started to make exceptions to offer loans to small business as there has been so much negative press that the banks are trying to change their image on how they are treating small businesses. A word of caution here is that banks generally require security and guarantees from the owner before they make loans. Also, restrictions on the loans can sometimes be very stringent.
The SBA continues to be a leading source of small to mid-size business financing. They have been given additional funding and government mandates to assist as much as possible with granting loans. This is a great source to turn for business financing. The SBA offers a variety of loan programs for businesses that cannot borrow from other sources on reasonable terms. However, the SBA normally places a limit on the amount of money that can be borrowed, but interest rates are usually slightly lower than those from banks. This financing is in the form loans from participating banks that are backed by the SBA in the event of default.
Venture Capital can be another source of funding as they specialize in certain types of businesses. They usually have formulas for evaluating a business and prefer strong minority ownership positions, as opposed to lending money in the form of a loan or some other debt instrument. Still venture capitalists may structure deals with both equity and debt financing. These firms can be lucrative sources of funds, but competition is fierce and thus very few companies who seek this type of financing actually receive it.
Business development corporations are privately owned companies chartered by states to make small to mid-size business loans. They can be very creative in the packages they develop. One very important aspect of these companies is that their loans are generally guaranteed by the SBA.
To ensure success with your endeavor to obtain a business loan be sure you have the following financials information.
- Up to date company financials
- At least 3 years of prior financials if applicable or at least one prior year.
- A completed business plan outlining competition, market strategy, environmental issues, etc.
- Three year forecast to include balance sheet, income statement and statement of cash flows.
- Narrative on how you plan to use the funds.