Key Things You Need to Know in the Funding Process
October 6, 2023 | Last Updated on: October 9, 2023
October 6, 2023 | Last Updated on: October 9, 2023
Securing the right funding can be a critical part of catapulting your business to success. But many small business owners feel overwhelmed at the thought of navigating the financing process. Thankfully, it’s not as hard as it might seem—and you can be inspired by the examples of companies like Early Rise Academy
In this article, we’ll talk about the ins and outs of the funding process and empower you to make informed decisions and ultimately secure the financing your business needs to thrive. Here are 8 key things you should know when applying for financing:
The first step in the process is to define your financing needs. Are you looking for funds to start a new business, expand an existing one, or bridge a cash flow gap?
Financing options vary depending on your business needs. By starting with your needs, you’ll be able to narrow down the types of financing you apply for.
Your credit score will significantly influence your ability to secure funding, including the terms the lender or financing provider offers.
Here are some tips for understanding your business credit score:
There are multiple options to consider when it comes to seeking business financing. Here are a few you should be familiar with:
Traditional Banks
Traditional banks have long been a go-to source for business funding. They offer a wide range of financial products, including term loans, lines of credit, and business credit cards, but also a rigorous application process.
Credit Unions
Credit unions are member-owned financial institutions that offer similar loan products to banks. They tend to focus on serving their local communities
Online Lenders and Financiers
Online financiers have gained popularity for their convenience and speed. They offer a range of funding options, including short-term loans, merchant cash advances, and peer-to-peer lending.
Government-Backed Loan Programs
Government agencies, such as the Small Business Administration (SBA) in the United States, offer loan programs designed to support small businesses. The SBA doesn’t award these loans, however, it merely provides loan guarantees to lenders, reducing the risk for the lender and the rate for the borrower.
Alternative Financing Options
Beyond traditional loans, there are alternative financing options like invoice financing, equipment financing, and crowdfunding. These options cater to specific business needs and often come with higher interest rates.
Lending institutions offer financing because they believe your business has a high chance of succeeding, and therefore they will make their money back with interest. It’s your job to convince them that this is true, and to do this, you’ll need a well-thought-out business plan outlining goals, strategies, and future revenue projections.
The funding application will require various documents, including financial statements, tax returns, and legal papers proving the legitimacy of your business. To expedite the application process, gather all required documents ahead of time, so that you don’t find out halfway through that you still need to dig up some old tax forms.
You will find each financier offers different terms on your financing. So, pay close attention to interest rates and associated fees. The interest rate directly affects the cost of borrowing, while fees can add up quickly. Compare offers from multiple places to find the most cost-effective option for your business.
Always read the fine print, carefully reviewing the terms and conditions. Understand the repayment schedule, interest rate adjustments, prepayment penalties, and any collateral requirements. The lender or financier should be able to answer any questions or concerns.
If your business is successful, you’ll need additional financing down the road. Consistently meeting your financial obligations and building strong personal relationships with your funding provider can help you secure better terms on future funding.
Applying for financing doesn’t have to be difficult or stress-inducing. With a little planning, you can streamline the process and have funding in hand with zero stress.
At Biz2Credit, we want you to achieve your business goals. Discover the financing options we have to offer your business, tailored to your unique needs.
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