Building and growing a business requires cash. The process of finding and obtaining working capital can be overwhelming, but you can greatly simplify the process by following a few simple steps. The following 5 steps will help you get started.
- Know why you need the money and how much
The best place to start is to determine how much money you really need and why. First, identify the reason you need the funding by placing your business into one of the following categories: to launch business startup, to manage day-to-day operating costs, to create a cushion of cash, to purchase equipment or inventory, to build a business credit history, or to cover other growth expenses. Knowing what you need the money for will help you pinpoint how much cash is necessary, and how much you can afford in payments.
- Decide what type of funding is best for you
Knowing what you need and what you can afford will be key in helping you decide which type of funding is right for you. If your business is just starting out, many traditional financing options will be unavailable to you; most banks shy away from working with startups due to the uncertainty involved. If you have capital tied up in accounts receivable and you have cash-flow needs, invoice factoring is a great solution. If you need cash quick – within days – but you have poor credit or limited time in business, many businesses turn to a merchant cash advance.
- Check your credit score
Whether the type of funding you choose considers your credit score or not (merchant cash advance provides cash regardless of poor or no credit), it is always wise to know what your business and personal credit score is. As long as you are not in a rush for funding, you could consider taking some time to improve your credit score before applying for financing. You will always have a better chance of being approved with a good score.
- Gather financial statements and documents
Beyond your credit score, most business lenders will need to see other key financial information and documents, including: business and personal bank statements, state registrations and licenses, business and personal tax returns, etc. You will also want to put together a detailed, professional business plan. While not every lender will require this information when you apply, being prepared will significantly speed up the process.
- Find the right lender for your small business
Small business financing is available through several different lenders, including traditional and alternative lenders. Find a lender that specializes in working with your business type and industry. They should also provide the amount of cash you really need, without adding an unnecessary burden of debt and fees. Before you apply, make sure the lending option you choose protects the long-term financial health of your business.
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has become a true asset for First American Merchant.