A record number of new business applications are getting filed, with 5.4 million submitted in 2021 alone. Yet, while the entrepreneurial spirit is inspiring, many of the people starting these businesses do not have the capital necessary to make their new venture a success. So, what is financing, and how can business financing help your venture?
What Is Financing?
Unless you have endless personal financial resources, you’ll eventually need to secure business financing. This could be an investment to get the business started or an injection of cash to help the business grow.
Similar to a personal loan, business financing involves a lender that provides a lump sum of money to a business. The business then agrees to repayment terms where the business repays the amount borrowed plus interest.
Decide How Much You Need
It can be tempting to apply for as much as possible. This isn’t always the best approach. The more you borrow, the more you have to pay back. Additionally, lenders will want you to justify the amount you’re asking for. If you can’t provide a logical plan, they will doubt your ability to repay the loan. This can lead to application denial. You also need to ensure the business can handle the loan size. Only borrowing what you need prevents the business from becoming over-leveraged.
Choose a Type of Funding
Traditional financing requires you to go through a bank. However, this isn’t your only option these days. Each lending option has pros and cons, so you’ll need to consider each to determine which funding source is the right fit for your business. Not all companies will qualify for each option, and not all options are suitable for all businesses.
- Traditional bank
- Online lenders
- SBA loans
- A business line of credit
- Business grant
- Invoice factoring
- Crowdfunding
- Independent investor
- Credit cards
Find Out How to Get Approved
Once you choose your lending type, you’ll need to research lenders. Learn what the approval requirements are. Typically, lenders want to know about the business. They will consider the amount of time in business, personal credit scores, business credit score, current cash flow, collateral, industry, and outstanding invoices.
Submit the Application
Once you have the details in place, you are ready to fill out and submit an application. Gather all of the required documents and completely fill out the application. Anything missing or incorrect will only delay your application. Some lenders have a relatively quick and easy application process, giving you a “yes” or “no” answer within minutes. Other lenders have a more formal and extensive application process that can take weeks.
Review and Sign the Documents
Once approved, the lender will send you loan documents. Always completely read through them and make sure that you understand all of the terms. You are agreeing to borrow a large sum of money, so you need to know what the business or you personally are liable for. If it is your first time seeking business financing or you do not have experience reading contracts, then it can be helpful to have a business attorney review the legal documents. This will give you a chance to ask questions and obtain advice.
If you agree to the terms, then you need to sign the loan documents and send them to the lender. This will complete the loan application process so the lender can send you the borrowed sum. You can then use the funds received and repair the loan according to the terms.
Secure the Financing You Need
If you find yourself in need of greater financial resources, then applying for business financing can be the solution you’re looking for. You’ll need to decide how much you need, what you can afford, the type of financing that is appropriate for your situation, and what your business will qualify for. With all of this information in place, you can research and choose a lender and file an application.
Schedule a consultation with one of your business attorneys and begin the process of securing financing for your next venture.
