Are you a small business owner surfing through the current economic tsunami or just need that extra cash to expand operations or purchase inventory? Have you considered small business funding but are too confused to make the first move?
We completely understand your uncertainty. In fact, you may have countless doubts about how small business funding works. This is why we decided to take some time to dig deep into small business loan and funding facts and break them down for you into 5 easy steps! Check them out and get moving, your business is waiting on you!
1. Develop a strong business plan for you and your funders.
Most funders will want to know how you plan to use the money and make sure that you have a strong ability to repay. Building a strong business plan will give funders more confidence in your business, increasing your chances to be approved for small business funding.
Also, if you determine how to invest effectively, you will be able to decide how much you need and most importantly, how much you can afford to borrow. Your plan should include the most current and projected financials to clearly demonstrate that your business will have enough cash flow to cover ongoing expenses and payments.
We recommend that it includes: a brief description of your company, service and product; a market or industry analysis; facilities and operations plan; marketing and sales strategy. Last, but not least a SWOT (strengths, weaknesses, opportunities, threats) analysis could also shed some light on where you are right now and how you'll get there.
Read more about how to create the ideal business plan for 2020 and beyond here.
2. Check what type of small business funding is right for you
There are different types of loans that small businesses can apply for from traditional lenders, such as banks or credit unions. Some of them are:
• Term loans (or installment loans). These traditionally structured bank or credit union loans provide a specific amount of money at a fixed or variable interest rate for a set period of time. They typically come with favorable conditions, but their requirements are strict.
• Small Business Administration Loans. These work through SBA-approved intermediary lenders, possibly a bank or credit union. For most programs, a strong personal credit score is required. They also have a lengthy application process, and funding can take several months.
3. Determine your chances of getting approved
Before you apply for funding, it’s important to understand how funders will evaluate your application. They might take a look at your personal credit score and history, cash flow, time in business, collateral, industry, and loyalty.
Filter your initial applications and only apply to those where you are most likely to find success. SBA loans, for example, ask for you to be current on all government loans with no past defaults. This means that if you’ve ever been late on a federal student loan or a government-backed mortgage, you’ll be disqualified.
Both the SBA and bank loan qualification process will require a hard inquiry on your credit report. So, save your visit to the bank if your credit score is less than 700 and forget about SBA loans if your personal credit score is below 640.
4. Prepare your documents
Depending on the type of small business funding you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the lender that you have the means to pay back.
When dealing with bank or union credit, you should expect to provide: balance sheets, profit and loss statements, both personal and business credit reports and income tax returns, bank statements, business licenses, franchise agreements and in some cases, quotes from contractors and vendors.
Congrats! You’ve taken the time to get your small business loan and funding facts straight. Now you’re finally ready to begin the application process. Depending on the lender and the type of loan you’ve selected, you may have to visit a financial institution or call the lender.
Alternative Funding Sources
Another excellent option for early-stage funding are alternative funders, which tend to be more focused on the future profit potentials of your business as opposed to your past credit history.
Alternative funding sources provide working capital and other forms of financing for small and medium-sized businesses whose owners need to access funds quickly and/or don’t qualify for more traditional loans from a bank. Business owners don’t need to have perfect credit scores to be approved for funding. Plus, the application process for alternative funding is likely to take minutes, not months. And the types of funding available, such as merchant cash advances- are designed to meet the needs of smaller businesses. Once approved – you often can access the funding faster – in days rather than the month or more that it takes to access funds from a traditional bank loan.
Or you can easily check if you qualify for small business funding in a couple of minutes from your home or business. One Park Financial works to help owners of small and mid-sized businesses access the funding that meets their needs. Established in 2010 and founded by entrepreneurs, One Park Financial understands the challenges associated with small business loans and their need for working capital. Visit oneparkfinancial.com or call 855.218.8819 and connect with a funding expert to discover the options that make sense for you and your business.