Running a small business is not a breeze. It comes with various challenges; the most important one being managing and securing funds. When you start a new business or when you own a small business, you might not have extensive capital in hand. To fulfill various requirements like paying suppliers and employees, fetching raw materials, paying for transport and so on, you need consistent cash flow.
The traditional ways of securing funds for small businesses have undergone a dramatic transition in recent years. Crowdfunding, instant online loans, peer-to-peer financing and so much more are now changing the way small firms seek and secure money.
Working capital business funding especially is gaining a high status since it addresses immediate demands. Emergencies in business never announce their arrival; in such cases availing and receiving a loan might not be the best option. This is where working capital comes in. Working capital loans satisfy a company’s short term demands and are quickly dispersed. Many firms offer small business working capital loans at a low premium and follow very simple and short procedures to keep you at your convenience.
Securing small business capital is never easy. So, here we have compiled 5 critical steps that will ease the process for you.
1] Build a Strong Business Plan
Lending money is no joke. Even though non-bank loans have a less laborious process of application; they too have some conditions you must qualify for. One of the most important of these is having a strong business plan. The business plan you put before the lenders should be realistic and well thought out. Lenders need to know what they are lending money for. Borrowers need to thoroughly explain how the money will be used and how will it be repaid. If asked they should be able to produce a proper outline of money requirements, management, and marketing. Repayment ability is something that is considered the most crucial aspect when lending out capital. Unless you possess relevant repayment ability; availing of a loan can be difficult.
2] Become Creditworthy
Having a negative credit report and/or credit score can be a major drawback when you try to apply for a loan. To avoid financial risks, lenders are likely to check for your credit score, therefore, it is crucial to deal with negative financial issues and resolve all business and personal tax issues. When lenders come across back taxes, liens, garnishments, multiple bounced checks etc; there’s a high probability they deny you a loan considering the high risk. Therefore, it is always a good idea to address all such issues beforehand and keep a clean slate, which makes you a deserving and reliable borrower.
3] Two Years of Business History is Desired
The business world is full of competition and if your business is not up to the mark; doom is certain. Being a successful and thriving business is no easy task in today’s world. Lending money to a start-up business that is not known and has no certain future can be intimidating for lenders. It’s easy to trust your business venture when you are established and financially strong. Without assuring the lender of long-term repayment ability, small businesses can have a hard time getting approved for a loan. If you have a minimum of two years of quality business history, you get liable for loans smoothly.
4] Become a Hands-on Owner
Adopt prudent business strategies like collecting accounts receivable in time without delay, avoiding tying up all your cash liquidity to inventory, constantly reviewing and monitoring your cash flow and eliminating unwanted expenses, getting rid of unprofitable account relationships, and lastly, adopting smart marketing strategies. All of this ensures your business stays in profit and once the lenders recognize you have strong control over your business, they will be confident of lending you a loan.
5] Plan for the Worst-case Scenario
Most lenders demand a 12-month long financial projection from the borrowers. These are to be presented considering both the best and worst-case scenarios. Fluctuations in business are inevitable, therefore, borrowers need to take into consideration how their business will survive and what is their plan to repay in case the revenue goes down by a few percentiles. This forecasting will save the borrower from future surprises and keep him prepared to repay, which will, in turn, bring comfort to the lender as they will know you have repayment ability even if your business faces loss.
Without capital, businesses just cannot survive. Availing of loans is no easy task but once you know what the lender requires for approval, you can be prepared and get the loan successfully. The above-mentioned steps are precise guidelines, which when followed, can ascertain that you will be qualified for a loan and never be short of funds, which will keep your business thriving without a doubt!