This time of year many small business owners look at the next 12 months and make decisions about growth, how to pursue opportunities, and maybe even expansion plans. Unless they have the cash flow to fuel these business objectives, they also need to consider their options for accessing the capital they’ll need to find success.
Because, like their larger siblings, many small businesses rely on borrowed capital to fund growth and other initiatives, they should follow the example of larger companies that make funding business initiatives part of their annual strategic plan. With that in mind, here are three things you should consider as you put your plan together for the year:
- Evaluate your financial needs: It might not be enough to identify how much money you’ll need to fuel a new expansion or add a new product. You may also want to consider a timeline. Having six months vs. a few weeks or days to fund an important initiative can make a lot of difference in how and where you look, or the type of financing you seek. For example, if you need capital next month to launch an important initiative, an SBA guaranteed loan might not be an option because the approval process simply takes too long. On the other hand, if one of the loan guarantee programs is a good fit for your loan purpose and you have time to submit your application, go through the approval process, and wait for funds, it could be a great fit.
- Consider your business’ financial position: Although lenders might not ask it this way, most lenders want to know the answers to three questions: 1) Can you repay a loan? Will you repay a loan? And, will you be able to make repayment even if something unexpected happens? So in addition to the overall financial health of your business, you also need to be very aware of your business credit profile and your personal credit history—because every potential lender will be and the options available to your business will be impacted by what’s in your profiles. If you, or your business, have a less-than-perfect credit profile, thinking in advance can help you take actions to improve in anticipation of a loan application in the months ahead. And, although you may not be able to create a perfect profile in a few months, being proactive today will help you make progress that could benefit your loan application down the road. Remember, slow and steady wins this race.
- What type of financing will best accommodate your strategy? There are numerous options for financing available today. Depending on your need you might consider a traditional term loan, a short-term business loan, equipment financing, working capital financing, or a business line of credit. Depending upon the nature of your business or how long your doors have been open, crowdfunding may even be an option. I’m a big proponent of matching the nature of the financing to the business need. By making financing a part of your strategic plan for the year, you’ll be better able to find the best match for what you want to do and what’s available to you.
Taking these steps might not guarantee you’ll have access the funds you’re looking for, but taking this approach and incorporating a financing plan within your strategy for the year will give you a leg up over scrambling to find the financing you need at the last minute. The world of small business financing has changed a lot over the last few years and there are, at least in my opinion, more options available to small businesses than ever before. With that being said, business owners need to be more savvy and strategic when it comes to choosing the financing options that will best meet their needs.
If you’d like to learn more about all the financing options available to your business, we’ve published, what we consider, a fairly complete guide to small business financing. It talks about everything from SBA guaranteed loans to online loans, what some of the basic qualifying criteria is, where to apply, and how quickly you can access funds.