Top 6 Reasons to Secure Additional Funding for a Small Business
January 14, 2019 | Last Updated on: July 15, 2022
January 14, 2019 | Last Updated on: July 15, 2022
Once your business is off the ground, it can be difficult to identify when you’ll need more funding. In this article we’ll look at the top 6 reasons you many wish to seek additional funding for a small business. Your business could be running smoothly, even surpassing your expectations. Is this the right time? Or maybe you’re having issues with cash flow. How about then?
Lots of different scenarios arise in your business’s lifespan that could serve as the right one for more funding. If any of these scenarios apply to you and your business, it might be a great time to consider seeking out more money.
Or, put another way, your business is doing very well on all measurable metrics. Because your business is succeeding, you know that you can put favorable financial documentation in front of prospective lenders.
But if your business is doing well, why get more money at all? There are plenty of reasons to consider additional funding. You could look at it as a rainy day fund in case of emergency. You could use it for any of the other scenarios explored here. Or you could simply look at additional funding as a way to give your company additional capital in order to have the sort of financial agility to make any necessary moves that could present themselves.
Why wait until you need new money? If you do, you might be forced to seek out unfavorable loans due to declining financial circumstances, time constraints, or cash flow problems. Strike while the iron is hot, as the saying goes. If the new money can be cheap, it might be worth getting.
If you’re finding that your equipment isn’t getting the job done as well as it used to or that there is new equipment available that could make your company run even more efficiently, you may want to consider acquiring an equipment loan.
Equipment loans are given exclusively so that companies can purchase new equipment from computers to tractors to food trucks, and lenders hold the equipment itself as collateral. Because they do, they’re able to offer favorable terms to the borrower – if the borrower were to default, the lender can simply repossess the equipment and sell it. There’s little downside for the lender.
So if you run a retail store with a point of sale system from the 1990s, or if your delivery truck is starting to rust and rattle, it may be a great time to think about a low-cost equipment loan.
Particularly if your company is running smoothly, new money can help you take that smooth operation to the next level. If your finances are going very well, customers are happy, and you’ve got enough inventory, it might be time for you to open a second – or larger – location.
This is another reason to keep aware of your surroundings. Maybe your business is going well and you’re planning to expand into another neighborhood in a year. But if prime real estate opens up in that neighborhood unexpectedly, you may be smart to go out, get another loan, and acquire the space while you can.
Or you could expand in other ways. Maybe customers are clamoring for another product in your wheelhouse. If you can provide that inventory, it may be time to get another loan and possibly burst into a new market.
If you’ve been able to improve your business credit scores and the company is making money, you might want to consider refinancing an old debt with a new lender. Presenting a new lender with your now favorable financial records could convince them to reduce interest in addition to simplifying your budgeting and bill payment schedules.
5. You need to make hires.
Similar to expanding physically, sometimes when a business is ready to make a jump in revenue and profitability a new hire can be the right move. Whether that’s an additional person in sales, getting your pitch into more ears, or an additional person in a warehouse, making sure your product reaches customers in a timely way, a new hire can be a world of difference toward the beginning of a company’s life.
Acquiring new money is a great way to ease the financial stress of a new hire. You can hire a new person and allow their work to bring in more money instead of depending on bringing in more money in order to hire a new person.
If you’re going to be taking out a loan to pay for a new hire, you need to be doubly cautious that you’re making the right hire and helping them be the best employee they can be. If you’re willing to make interest payments for a great hire, you can imagine the financial straits that can come about when a new hire simply adds expense without adding revenue or helping the company run more efficiently.
If your company experiences regular and predictable highs and lows, it might be worth considering financing a boost in inventory when inventory is at its cheapest. In addition, extra funding can help you stay afloat during the lean times and help manage the extra business during the peak.
Understanding how your company’s capital ebbs and flows can help you decide when the best time to get that extra funding and how best to use it.
No matter why you think it’s time for new funding, always make sure you’ve got a plan for new money.
It seems obvious, but it is unfortunately lost on business owners sometimes. If you don’t have a plan for your loan money, it can be disastrous for a company. Fitting one of the scenarios above isn’t an automatic sign that you should acquire another loan.
Know why you’re doing the things you do. If you’re going for an equipment loan, what exactly are you buying with it? Why that equipment? If you’re hiring a new employee, why are they necessary?
If you’ve got a plan and you’re not acquiring funding to cover another debt, additional funding can help your company take the next step up in your industry.