Getting approved for a small business loan is a large hurdle for any business owner. Since the financial crisis of 2008, this task has become even more complicated with banks tightening their lending standards. While some business owners resort to family and friends, personal finances or credit cards, these options are not ideal for everyone (or possible).
To successfully grow a business and cover day-to-day operating costs at the same time, it is often necessary for a business to look outside of itself for a cash solution. This additional capital allows the business to purchase new equipment, increase inventory, hire new staff, cover payroll and rent, etc.
Are you in need of extra working capital but are unsure of where to start? Consider the following 5 questions that will help you go step-by-step through the process:
What do you need the capital for?
First, determine why your business needs business funding. Do you need cash to start your business venture? Or do you need to boost cash-flow to manage day-to-day operating expenses. Does your business have an opportunity that extra capital would help you take advantage of and grow? Or do you simply want to create a cash cushion?
Which funding option is right for you?
Your answers to the above questions will determine which type of loan is right for your business. For example, if you need to take control of accounts receivable, some business owners choose invoice factoring as a cash solution. If your business is just starting out, a cash advance with an alternative lender like First American Merchant might be your best option. As a high-risk specialist, FAM is more than happy to work with a startup – unlike a traditional bank that will shy away from the risk.
Which lender offers the best options?
Small business financing can be obtained from a number of sources: banks, nonprofit microlenders and online lenders. Their products will include anything from term loans to lines of credit to accounts receivable financing. Once you have decided which lender best suits your business’ needs, you will want to compare the total borrow cost and the terms involved. Choose the one with the lowest APR (just make sure you can handle the loan’s regular payments).
Do you have what it takes to qualify?
In addition to your credit score, lenders will consider how long your business has been operating and its minimal annual revenue. Another huge factor they will examine is your business’ financials, especially cash-flow. They will want to see that you can maintain positive cash-flow; this tells them whether or not you can afford monthly loan repayments.
Have you gathered the necessary documents?
The final step is to gather all the necessary documents. You would be surprised how many business owners walk in to apply for business funding completely unprepared. While the requirements will differ depending on the lender, you will likely need to submit a combination of the following documents: business and personal tax returns, business financial statements, business legal documents (e.g. franchise agreement and articles of incorporation), and business and personal bank statements.
Business Funding expert, Nathan Hale, founded First American Merchant with his eyes set on helping the backbone of our country, small business owners. His passions include writing/producing music, and travel. First American Merchant is America’s Best business funding company, serving both traditional and high-risk Businesses.