Finance FAQs – 5 Tips To Help You Select The Best Financing Option For Your Business
by Arina Smith Finance 27 January 2021
There comes a time in every business venture’s life when the need for capital outweighs the funds on hand. When this happens, a business owner will usually begin to explore the many financing options available and wonder which is the right one.
This is a common scenario, which is why we’ve compiled this list of tips designed to help you choose the best financing Option For Your Business:
1. Know Your Options
There are many finance options available to businesses large and small. You must know and understand the differences between each of them so you can choose the one that will meet your needs best.
As a business owner, you can go in a number of different directions to gain the money you need to grow your business. These include:
- Term loans
- SBA loans
- Asset finance services
- Lines of credit
- Invoice financing
- Inventory financing
- Equipment Financing
- Crowdfunding, and
2. Is Financing Really The Best Approach?
There are many reasons a business may need outside financing. From funding an expansion to covering unpaid customer invoices, business financing is a great way to help your company grow. That said, financing may not be the best option if you are constantly using it to make ends meet. If you finance to meet your payroll needs or to cover regular overhead costs, it’s better to rework your business model rather than use financing to make ends meet.
3. How’s Your Financial Health?
Regardless of which financing option you choose, a reputable lender will expect you to divulge your company’s financial health to qualify you for a loan. Most lenders will look at your time in business (the longer you’ve been in business, the better), your revenue (you have to prove your company generates revenue and profit), and your business documents (tax returns, bank statements, business plan, and the like) You need to be prepared to give your lender all the information they need to evaluate your financial health and determine your ability to repay the obligation.
4. How’s Your Credit History?
Your personal and business credit score is subject to review any time you apply for business financing. Most lenders like to see a personal credit score of 600 or more, which will likely get you a lower interest rate and longer repayment terms.
Lenders will also look at your business credit score, so be sure to open a business credit card with a vendor who reports to the credit bureaus as soon as possible after opening your business. Just make sure you always pay your bills on time!
5. How Much Can You Afford?
When you apply for business financing, you should have an idea of how much you’ll need to complete the project or meet your needs. “As much as possible” won’t cut it, so don’t be tempted to request anything like this from a lender.
Once you’ve determined how much you’ll need, use a business calculator to help you determine if you can afford the amount based on your company’s cash flow and any requirements of the finance option you choose.
There are many ways to raise the capital you need to fund your business ventures. The tips above will help you get started in choosing the one that works best for your specific situation. The options listed at the beginning of this article are but a few of those available to you, with personal loans, retirement plan funds, and low-interest business credit cards representing some additional avenues. Do your homework, consider your needs, and make an informed decision for the future of your business.