Every business needs an influx of cash at some point. So if you’re a business owner, you know you’ll inevitably need to find the right financing option for your small business.
Choosing that lender is not easy. The internet has given business owners a nearly infinite amount of information about loans, lending, and finance, but such a wealth of information can make it difficult to know where to begin.
So before you head to a financial institution to apply for the loan your business needs, consider these three keys to help you make a choice about what kind of loan you need and where to go to apply.
Key 1: Make sure the financing you’ve chosen fits your goals and plans
It may seem so obvious that it’s almost counterintuitive, but it’s important to know exactly why you need your loan. “To expand,” isn’t specific enough. “To get more equipment,” isn’t all that helpful either. Figuring out exactly how you’re going to spend new capital will inform every subsequent step in the process.
If expansion is your goal, what exactly does that look like? Does that mean purchasing or leasing property to add an additional point of sale? Does it mean hiring more employees? Does it mean an increase in inventory? How much do you want to expand? Is this a one-time burst of activity or the beginning of a long-term period of planned growth for your business?
Know your goals, your needs, and your plans. Once you’ve got those nailed down with specificity, you can consider which types of loans might be best for you.
If your goal is to drive sales by adding an expensive new piece of equipment, an equipment loan, which often uses the purchased equipment as collateral, may be the best choice. If you’re opening a new location, a commercial real estate loan could help you acquire that new property. Maybe you’re eligible for the less expensive, but difficult to acquire, SBA small business loans which are backed by the United States Small Business Administration.
Regardless of which specific lending strategy you choose, make sure that you’re starting your process from a position of clarity about your goals, needs, and plans. As you get going, always be looking for more information about business loans. The more you know, the more you’ll be able to strategize different ways of putting your newly-acquired capital to work for you.
Key 2: Use your new funds to produce immediate results
Financial institutions base their decisions on whether to lend money on a variety of criteria. But those criteria mostly boil down to how likely your company is to repay a loan in full and on time. So when you’re planning to apply for a new loan, you should be ready to use that money in ways that produce measurable results.
The measurable outcomes that financial institutions want to see most are simple. They want to see more revenue and greater profitability. And how can you use a loan to create those outcomes?
There are four proven ways to use new funding to increase revenue and become more profitable:
- Payroll. Hiring new employees is a great way to increase revenue. A larger sales staff could mean more leads are being followed, or maybe more potential customers are getting exposed to your products. More engineering staff could mean better or more user-friendly software products, which can increase sales. No matter which specific type of staff you’re adding, those additional workers will frequently lead to increased revenue.
- Inventory. Buying or creating more of the products you sell at the right time is a fantastic way of becoming more profitable. Many manufacturers will offer better prices at bulk rates, and a large base of inventory could allow you to offer the kind of prices that lead to big jumps in sales. Also, if you’re able to always have your customers’ favorite products in stock when they come ready to buy, you’ll be building up loyalty with them for the future.
- Equipment. Updating, upgrading, or adding new equipment can also work wonders for your financial outcomes. A new piece of equipment can produce your product faster or better. It could even allow you to create new variations of your product. Maybe a new piece of software will help your staff simplify an important process to the point where they’re able to take on new projects. There are a multitude of different ways new equipment can impact your company’s performance positively.
- Marketing. One last way to increase revenue is to invest the newly-acquired funds in a targeted marketing campaign. Smart marketing usually leads to the increased sales you’re looking for without committing to new staff or inventory. In addition, marketing can be less expensive than the other options listed here, so advertising in a new way – on social media, in print, or through search engines – could be done in conjunction with other strategies above, leading to even greater profitability and revenue.
Regardless of how you choose to spend the newly-loaned money, it’s important to use it in a way that achieves direct outcomes you can point to next time you’re looking for funding. As always, showing that lending you money leads to a more successful business is the best way to convince future lenders that they should lend to you with favorable rates and terms.
Key 3: Find the right funding provider
Once you’re sure of your needs, goals, and plans and have determined how your loan will create measurable results, you can use those answers to find the perfect lending provider.
You want to find the provider who best fits the criteria you’ve created based on your planning in the two steps above. But you also need a provider who will be able to get you your funding as quickly as possible. Using an online lending marketplace will allow you to see a wide variety of options all in one place.
Many business owners will be overwhelmed with multiple options at this stage. There’s always the possibility that two differing options present themselves as viable funding options. If that’s the case, choosing to work with a company and a lender that you can trust is always your best bet. Smart banks like Popular Bank and regional non-bank startups such as Buffalo Business Loans in Western New York, combine the best of both a fast and secure online process with the expertise and experience to guide their clients. Try to meet with the relationship manager you’d be working with. Make sure he or she is knowledgeable about your industry and that they’re experts in the type of funding you’re looking for.
Don’t be afraid to be picky here. Acquiring additional funding is incredibly important for small business owners. So whether you’re getting a cash advance to cover a short-term need, applying for an equipment loan to build new capabilities, meeting with representatives of a local credit union, or getting an online business loan from a bank, the most important thing is that you’re prepared to take this important step. You’ve looked at your alternatives, you’ve consulted your business plan, and you’re positive that the loan you’re applying for is the right financing option for your small business from a lender you can trust.