How to Obtain Business Funding!
It takes money to start or grow a business. The unfortunate truth is that a lot of businesses and/or people are not qualified to come up with all the money that they need…
It takes money to start or grow a business. The unfortunate truth is that a lot of businesses and/or people are not qualified to come up with all the money that they need, which is why angel investors and venture capitalists have become quite popular. There is a major downside however to pursuing this path. You will be forced to give up equity in your company. There are methods of obtaining business funding on your own and this is what this article will address.
This is why it is important to understand how to obtain business funding. For the sake of your company, you need to be prepared and knowledgeable on what is currently available and steps that you can take to increase those possibilities. Let’s start by taking a look at the 3 C’s. In order to get qualified for funding you will need to bring one or two of these to the table.
CASH: The old adage, “Cash is King”, is still true today to some extent. Cash flow shows the proof in ability to pay back debt. There are loans available for businesses by purely looking at this aspect but if you combine with another C, the rates and terms become much better. A common lending practice focused solely on cash flow is referred to as a merchant cash advance or simply cash advance. The downside is that by only using this factor to qualify, the interest rates can be pretty hefty.
Cash is also a requirement for a number of other lending practices. Let’s say that you want to get into the real estate world and generate revenue by purchasing, repairing, and selling the property. You will be required to bring money to the table as a down payment for a percentage of the purchase price. This same concept is true when you are picking up heavy machinery or vehicles through the use of equipment leasing and financing.
CREDIT: Having good personal credit opens up many more avenues when it comes to funding. It is possible as well to establish business credit that creates even more opportunities. Lenders will always want their money back. There is no way around it. Underwriters will look at scores, history, utilization, and other to determine the likelihood of being paid back. A low credit score paints the picture that the lender will eventually have to sell off the debt to a collector for less and lose out on cash.
Someone with extremely good credit can obtain up to $150,000 in unsecured lines of credit for their business even being a brand new company. Lower than a 680 credit score, higher than 35% utilization, late payments or delinquencies, and/or other will net you a total of $0 initially. Then when it comes to real estate, equipment, inventory, or other types of loans, a minimum credit score is usually required. Rates will then fluctuate based on the score with the worst credit paying the most. These are just a few reasons why it is imperative to keep your personal credit score in as good standing as possible.
Business credit is similar to personal credit in the idea of reporting to credit bureaus, but it helps you detach yourself and your personal liability from your company. Also like personal credit, it takes a little work to build up your business credit. It does not happen overnight which could be a reason why only 15% of companies out there take advantage of it. Another is knowing the process which we are certainly happy to help you with. CLICK HERE to read more on building business credit.
COLLATERAL: Having something of value is another method of securing financing. In business there are limitations though on what those items can be. This is generally restricted to real estate, land, heavy machinery, and possible vehicles. The reason for looking to go through more of a business loan structure as opposed to personal is because the rates are much more reasonable.
On the personal side, there is probably a pawn store just a few blocks from you. The concept is the same but they are able to accept a lot more types of items. This is why you will see all sorts of specialty and strange things come through these places. There is value but there is also risk.
The lender is looking at it from the perspective of if payments are not made, the money can be recouped by selling the item. How hard is it to sell is the question they ask themselves. The reason they place a lien on properties and equipment when a loan is taken out against it is to be able to assume ownership and get rid of the bad debt.
CONCLUSION: In order to qualify and obtain business funding, you need to be able to prove to the lender in some fashion that they are not going to lose their shirt by working with you. There are likely 100 other people just like you looking for the same thing and even talking to the same person. A good story is not going to get you what you want and if you blab on long enough, it can even cause them to not respond to you in the future.
The best thing that anyone can do is to bring forth one of these arguments to display your ability to repay debt. Focus on these aspects and you will see more doors open. If you need help putting together a plan of attack, please feel free to reach out. We are always happy to help.
Related desks: Business funding