Without money, small businesses don’t last long. However, small business financing your business can be a struggle, especially if you aren’t sure of your options. Fortunately, small business owners have several choices, some smart and some not.
Small business owners often look for small business loans or financing for daily operations and special situations. Financing can help small business owners set up their businesses or purchase a pre-existing company. Financiers can also help small businesses grow by purchasing new equipment or filling their shelves with new stock.
Emergency funding situations can help businesses with unexpected demand or market opportunities. Some companies need financing to continue running after a natural disaster or local problem. Whatever your situation may be, a financial solution can carry your business through the circumstances.
»Do explore your options
If you’ve been approved for a bank loan, understand that you have other lending options. Before signing on the dotted line, look at multiple sources for business loans, including peer-to-peer lending and marketplace lending options. You might find that bank loan alternatives like these have better interest rates and terms or a lower entry threshold.
»Don’t ask for a loan without understanding how to pay it back
When you approach a lender for a loan, it’s essential to come to the meeting with realistic payment plans. Business owners should know how much money they need and the time they need to pay it back. Business loans tend to have shorter terms than personal loans, so it is crucial for business owners to have a backup plan if anything goes wrong.
»Do create a business plan and update it as needed
Your lenders will want to see your business plan. Having one gives you the tools to stay on track with your original goals. But, as your business changes, don’t forget to update the plan. You’ll see how your business has grown and what you can do to keep it growing.
Having a plan proves that you’ve thought about your business which shows lenders you are serious about it. Your business plan can attract investors if you show your company’s potential income.
»Don’t risk your home by using it as collateral on any loans
Small business owners often put their personal property on the line as collateral. It’s not a good idea to risk your home or other property for a small business. If your business doesn’t succeed and lenders come for their money, you could lose your home.
Rather than getting a home equity loan or other personal loans for your business, investigate your alternatives. You might not get more significant amounts at once, but you won’t endanger your home.
»Do track your financial records
When you’re shopping around for a loan that fits your needs, lenders will ask for financial records. If you can’t show accurate records, lenders won’t lend you money. As a small business owner, it’s your job to track the money that comes and goes from your company.
You don’t have to create your financial tracking system. Instead, keep things simple by relying on financial software that already exists. Choose a system that is easy to use and has free updates as federal, state, and local tax regulations change.
»Don’t ignore your taxes
Small businesses need to pay their taxes. If you forget or ignore your obligations, your company could receive expensive IRS penalties.
Companies with tax issues show lenders that they cannot pay back their loans, meaning lenders will immediately deny applications. When you choose your small business financial software, choose one that sends tax payments automatically or sends reminders so that you don’t forget.
»Do borrow what you need when you need it
Small business financing has different requirements than personal loans and financing. Most loans have short terms, and lenders need various forms of collateral that differ from what individual lenders need. Therefore, small businesses should only get loans when they need them.
Small companies do not benefit from overextending themselves, especially on unnecessary loans with high payments and interest rates. Instead, get small loans when you need them. For example, if you need to purchase a piece of equipment, finance it to make it more affordable in the short term. You’ll build credit and not overextend your business.
»Don’t lie about your company’s financial status
Some small business owners try to trick their lenders by overestimating or underestimating their organization’s financial status. Lenders have experience recognizing when business owners tell lies about their company’s finances, especially since they know how to read financial documents. Tell the truth to get a loan that helps you grow your business.
Wrap up
Small businesses have several options for their business financing needs. Having a business plan, knowing your financing needs, and being an honest borrower helps small businesses get the financing you need. Before signing any lending documents, understand how loans and other lending products can help your business and potentially harm it.
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