If you have a great idea for a new venture or you want to expand a thriving startup, it is likely you will need to access some form of finance. When you have access to the capital you need, you will be able to invest in the resources that will enable you to launch or scale your business.
From raw materials and stock to rental costs and advertising, there are a variety of expenses that new or growing businesses face. Financial issues or limited cash flow can devastate a company, which is why it is important to have commercial financing in place.
While it is not always easy to find the type of financing you need at competitive rates, there are steps you can take to improve the likelihood of being approved for business loans and credit.
- 1 Here Are 7 Things to Do If You’re Looking for Business Finance:
- 2 Finding Commercial Financing
Here Are 7 Things to Do If You’re Looking for Business Finance:
1. Do Your Research
Before you begin applying for business finance, think carefully about how much capital you need access to. Underestimating the amount you need to borrow can mean that you don’t have access to the funds you really need further down the line, which could result in missed payments or arrears.
By being realistic now, you can ensure that your commercial financing will cover the requisite expenses and give you the springboard you need to launch or expand your business.
When you are calculating how much capital you need, gather information from trusted, verifiable sources, and remember to include some leeway for variables. If the economy takes a dip and interest rates rise, for example, you will need to ensure that you have the funds you need to account for this.
2. Create a Detailed Business Plan
Once you have done your research regarding your upcoming expenditure and capital needs, you will be well-placed to create a comprehensive business plan. Potential lenders will want to analyze your plans carefully, so do not overlook the importance of this document.
Your business plan should include a description of your company, competitor analysis, go-to-market strategies, operational strategies, financial forecasts, and budgets.
This will have a significant impact on whether a lender decides to approve your request for commercial funding, so be sure to double and triple-check your calculations and sources before you share your business plan.
Although developing a business plan is something you really have to do in order to access funding, it can also be a valuable method of optimizing your business strategy.
In the process of creating your business plan, you may identify potential challenges or opportunities that you had failed to address, which will give you the chance to leverage them for maximum success.
Related Resource: 5 Tips to Manage Business Finance
3. Improve Your Credit Score
If you set up a company, it might be the business itself that applies for credit. However, this does not mean that your personal financial history won’t affect the outcome of your applications.
Many lenders require company directors to disclose their personal financial situation when applying for business finance, particularly if they own a new business or are in the process of launching a new venture.
By improving your own credit score, you can ensure that your personal finances won’t have a negative effect on your business’s financial status.
To find out how you can boost your score, take a look at Tally’s blog post on how to get an 850 credit score. In a few simple steps, you can reduce your credit card repayments, cut the amount of interest you pay, and simplify your repayment strategy via the Tally app.
4. Consider Your Options
There are many different types of business financing available, so do not assume that you should only apply for a business loan. A commercial line of credit may be a more flexible solution that meets your needs, for example.
Alternatively, a dedicated startup loan, as opposed to a general business loan, maybe a good option for entrepreneurs who are just starting out.
Additionally, it is worth considering approaching angel investors and venture capitalists if you want to obtain an injection of cash for your business.
While you will need to give up a percentage of shares in your company in return, you can also access guidance and support from experienced professionals who want to take an active role in the businesses they invest in.
5. Reduce Business Expenditure
Cutting your business costs will increase profitability and make your financing applications more attractive to potential lenders. When more of your revenue is designated as profit, rather than being spent on operations, it increases the commercial success of your company.
Investors and lenders will be more easily persuaded if you can boost your company’s profitability prior to applying for financing, so be sure to take steps to reduce costs before you request a loan or credit.
Although some business expenses are unavoidable, there are sure-fire ways to reduce the amount your company spends. Switching from offline advertising to digital marketing could reduce your outgoings and maximize marketing ROI, for example.
Alternatively, moving to cheaper premises, negotiating a better deal with suppliers or minimizing energy usage could be viable ways to reduce your business expenditure.
6. Put Down Collateral
If your company has existing assets, these could be used as collateral to obtain business credit. When you are applying for loans, for example, using assets as collateral will enable you to apply for secured loans, as opposed to unsecured credit.
This is a safer option for lenders, as they can repossess the collateral if you default on the loan and, therefore, you may be able to obtain credit more easily than if you do not offer any collateral. Furthermore, secured loans often have lower interest rates than unsecured options.
It is important to remember, however, that any assets you do use as collateral are at risk if you get into arrears. Due to this, you will need to consider the pros and cons of secured business financing before you decide whether it is the right option for you.
7. Calculate the Amount You Will Owe
When you are eager to obtain business financing, it is tempting to accept an offer that a lender makes. However, it is essential to know exactly how much you will owe to determine whether the terms are beneficial for your business. Financial terminology can be hard to decipher, so be sure to access advice or assistance if you require it.
A $50,000 loan over five years with an APR of 9% might not sound too expensive, for example, but the total you will be required to pay back is $61,764.95, according to these terms.
By taking a detailed look at any financing you are offered, rather than accepting immediately, you can ensure that the terms will benefit you and your business.
Finding Commercial Financing
There are plenty of options to consider when you are looking for commercial financing, but they each have their pros and cons.
From business loans and grants to peer-to-peer lending and venture capital, savvy entrepreneurs will assess all of the options before moving forward with financing applications and strategies.
However, you do not have to do this alone. Working with a qualified financial advisor can help you to cut through the complexities and find the best form of financing for your business.
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