Small business funding can be easy if you check all the right boxes and plan ahead.
The state of the economy: roaring. Markets are up, consumers are confident and the Fed has committed to backing off those dreaded rate hikes. This is all positive for entrepreneurs looking for small business funding.
However, long stagnant wages are now also on the rise. While this is good news for workers, it means small businesses will need more cash on hand if they are looking to expand. And if there’s one rule for entrepreneurs: you’re either growing, or you’re dying.
So, here’s the top 5 things to consider for small business funding:
1. Why do you need cash for growth?
Any cash infusion into your small business should be accompanied by a well thought out plan detailing how exactly you are going to spend that money.
Never think of borrowed cash as a slush fund for odds and ends. You need to lay out to investors and to yourself how this money will expand your business and improve revenue in the years to come. Otherwise, are you really leveraging a growing business, or just plugging holes on a sinking ship?
Experts advise if you really want small business funding, don’t fall prey to the sunk cost fallacy, throwing good money after bad. Have a plan, make it specific, and invest in yourself with strategic confidence.
2. What type of small business funding is right for you?
If your business is in its first year, it’s likely not the right time to consider borrowing from a financial firm.
Investors need to see records of cash flow to assess risk. This leaves very few options for new businesses: business credit cards, crowd-funding.
Or, you could always hit up family or friends.
We’ll leave that thorny issue to you. The important thing is to understand where your business is in its life cycle and seek funding accordingly.
3. Where to get cash for growth?
For burgeoning entrepreneurs beyond those hard-fought initial stages, there are many more options.
Big banks might not land on your dewy fresh start-up, but in 2019, alternative capital firms are swooping in. If you have a stellar plan and a solid start that has gone beyond the one-year mark, seek out smaller investors who specialize in identifying small businesses ready to bloom.
4. See if you qualify for small business funding
This means checking your credit score. Banks generally require a score above 680.
Don’t though let a marginal credit score stop you cold. Thanks to a strong overall economy there is now roughly $10 billion in small business funding available every single month.
Confoundingly, despite that startling sum, over 70% of small businesses looking to secure capital are denied by big banks. That sounds like a lot, and it is, but experts advise that small businesses, especially those with bad credit, do have other options.
Many smaller investors still offer competitive APR, but also have the bandwidth to evaluate businesses fairly based on their strategic upside and won’t automatically deny financing on the basis of mediocre credit.
5. Make a list and check it twice
As we’ve been emphasizing, the number one reason any business is denied a much-needed cash infusion is not poor credit or poor earnings. It’s disorganization.
Any application for small business funding must check all the right boxes. We’ve compiled a handy list here.
The bottom line is investors need to see that your business is organized. If you can’t locate necessary tax documents or make reasonable projections about how a cash infusion will directly affect future revenue, then capital might be tougher to secure.
Conversely, entrepreneurs with solid business plans and all their documents in order are highly likely to secure financing in 2019’s bullish and diverse investment climate.