Obtaining the funding needed to expand your business can be frustratingly difficult, but knowing what to expect when searching out financing options can be the difference between success and failure. Securing financing can help a business progress to the next level and become more profitable. In this article, we’ll discuss proven methods to secure business financing and the benefits they bring.
Understanding the Need for Business Financing
Every business has unique financial needs. Whether you’re starting out, expanding, or looking to cover short-term expenses, understanding your financial requirements is the first step in securing the necessary funds. Business financing can provide the capital needed to purchase inventory, hire staff, invest in marketing, or manage cash flow. But how do you determine the best strategy for your business?
Assess Your Financial Situation
Before seeking financing, evaluate your current financial situation. Understand your cash flow, existing debts, and credit score. This will help you determine how much financing you need and what type of financing will best suit your business.
Identify Your Financing Goals
Clearly define what you need the funds for. Whether it’s for expansion, equipment purchase, or working capital, having a clear goal will guide your choice of financing options and make your business more attractive to potential lenders or investors.
Preparing to Secure Business Financing
To increase your chances of securing financing, you need to be well-prepared. Here are some steps to help you get ready:
1. Create a Business Plan
For many lenders, you need to demonstrate your company’s potential by developing a professional and thorough business plan. The plan should succinctly outline how the business currently operates and how it will be improved through extra funding. Identify areas of the business that the financing will improve and present reasonable projections of how the funds will increase profits.
Your plan is an opportunity to demonstrate to the financing company that you have a strong grasp of the fundamentals of business. They will be investing in you as much as your business so they need to be confident in your ability and your grasp on financial realities.
2. Review Your Credit Report
Your business’s credit standing will play a pivotal role in whether or not you’re granted financing from traditional lenders so do everything you can to improve your situation before seeking out funding. If necessary, hire an accountant to go through your records. A healthy and well-maintained credit record will greatly increase your chances of securing a loan. However, with the Federal Reserve continuing to raise rates, business owners are looking for alternatives to traditional loans.
Pay for a detailed credit report so you know where you can improve. Eliminate any outstanding debts and take care not to miss repayment deadlines. The six months prior to your loan application will be the most closely scrutinized in terms of your credit rating so plan long-term before submitting your request.
Related: Factoring or Term Loan—Which is Best for Your Business?
3. Polish Online Presence
Lenders will use every method at their disposal to get an overview of your business, and its reputation and your online presence is a big part of that. Make an effort to polish your digital profile. A professional, well-maintained and efficient website and social media presence will provide valuable assurance to the lender of the legitimacy of your enterprise.
Reviews play a large part in how you’re perceived online so focus on improving your reputation across all areas of your business. Generally, lenders are looking for signs of good business practice so ensure your online persona is a flattering one.
4. Calculate Collateral
Like with most loans, you may be asked to provide collateral. If your business has tangible assets, calculate their worth and decide before applying what you would be willing to offer as collateral. If you fail to make the loan payments, your collateral may be seized and sold, so it’s important you know its value.
Get independent evaluations of your property or goods so that you can judge how much money you would be entitled to request in return for using it as collateral. If you aren’t confident in your ability to pay off the loan, don’t risk your assets.
5. Transparency
It can be tempting to overestimate your revenue and understate risk, but it’s important, to be honest when evaluating your business and its potential. Financial institutions will take measures to verify the information you provide so it will reflect poorly on your character or capabilities if your figures are wrong.
Any funding application should be as thorough and genuine as you can make it. A less successful business with a solid grasp on its own worth and potential will have a better chance of being granted funding than a more profitable one with erroneous information.
6. Consider Alternative Financing
Bank loans are a conventional solution to increase working capital for businesses. However, sometimes a bank loan is not the best options for companies who need funds quickly or do not have a credit history preferred by lenders. The application and approval process for banks can take weeks or even months, and approval is not likely for businesses without a solid credit history or assets to leverage.
Accounts receivable financing, also known as invoice factoring, is a solution for businesses that need funds quickly without the having to rely on a preferred credit history or assets. These businesses can sell their open invoices for a quick influx of cash. The application and approval process only takes days, and no assets are necessary to qualify for funding.
Related: Selling Accounts Receivables to Finance Your Business
Building Relationships with Lenders and Investors
Establishing strong relationships with potential lenders and investors is crucial. Attend networking events, seek referrals, and maintain open communication. By building trust and demonstrating your commitment to your business, you increase the likelihood of securing financing.
Leveraging Financial Advisors
Consider working with a financial advisor or consultant. They can provide valuable insights, help you navigate the financing process, and connect you with potential funding sources. Their expertise can be instrumental in securing the best financing options for your business.
The Benefits of Securing Business Financing
Securing the right financing can unlock numerous benefits for your business, including:
- Increased cash flow: With access to additional funds, you can manage day-to-day operations more efficiently and invest in growth opportunities.
- Business expansion: Financing enables you to expand your business, whether it’s opening a new location, launching new products, or entering new markets.
- Enhanced competitiveness: With adequate funding, you can invest in technology, marketing, and talent, giving your business a competitive edge.
- Improved financial stability: Access to financing helps stabilize your cash flow and manage financial challenges, ensuring your business remains resilient.
The Bottom Line
Seeking out additional funding can be quite challenging, but many of the key attributes of success also boils down to good business practice. The details that financing companies look for are genuine signs of a solid foundation and growth potential, so if you get these basics right, your future will be more profitable regardless of the outcome of your application.
Your Questions Answered Quickly
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.
