If you’re in the world of small business management, you probably know the scary statistics already: around 20% of small businesses fail within a year, and only a third make it to their tenth. One of the biggest reasons why these businesses close their doors? Financing hurdles.
Financing a small business isn’t easy, whether you’re a new startup or you’re looking to expand. As you work to grow your company, here are a few things you should know.
1. Consider Multiple Types of Financing
When it comes to upgrading your small business finances, don’t forget that you have plenty of options that range far beyond the traditional business loan. Here are a few to consider:
- Traditional bank loan: With strict eligibility requirements, these include varying loan rates and term lengths
- Small Business Administration loan: Guaranteed by the federal government, these loans tend to have great rates and terms
- Personal credit card: With a high enough limit, personal credit cards can be a safe and accessible option
- Business line of credit: Like credit cards, this allows you to tap into your credit anytime you need the funds
- Angel investor: If you’re willing to give up ownership equity, this option can help grow your business fast
- Crowdfunding: A version of peer-to-peer lending, this option lets you receive financing from early investors
Though these are among the most common financing options, there are plenty of alternatives worth considering if these don’t work for your needs.
2. Go Beyond Basic Eligibility Requirements
Each of the types of business financing above will have unique eligibility requirements, such as a minimum annual revenue. However, it’s important to consider the full picture of your business as you work to optimize your chances.
Lenders will look at your cash flow, your capital, and your debt-to-income ratio. They may also consider the type of business you’re funding as well as any relevant industry trends. Depending on the type of financing you seek, they may also consider what kind of collateral you can put up.
In addition, lenders will consider your personal character, including your credit history and your financial management skills. Tracking your organization’s spending through business management software like Bento can show your ability to keep your company afloat.
3. Be Wary of Financing Scams
In an age of online lending spurred by the COVID-19 pandemic, it’s easier than ever to get business loans—but it’s also easier than ever to fall into a scam. If you’re looking at a quick and affordable loan that seems too good to be true, it just might be.
Research your lender with due diligence, especially if you’re working with an online lender, and be aware of common business scams. Note that scammers may attempt to steal your money or your personal or business information.
Try These Tips for Financing a Small Business
Financing a small business can feel like a huge challenge, especially if you’re new to leading a company. However, the tried-and-tested tips above can help you identify your best options while protecting your business in the long run.
Want more of the insights you need to make the most of your brand? Be sure to take a look at our other small business guides for additional tips.