Help your small business grow by creating an excellent case for growth financing.
Business loans: whether you're looking at growth financing or seed financing, securing a loan can be one of the most stressful parts of starting and growing a business. As you work on your business planning, you need to think about how you'll launch financing for your business.
To develop financial resources for business, you need to create a compelling case so lenders will help you with your business loans. How can you prepare to ask a lender to help you grow your small business?
Look in the right place for business loans to help small business.
As you look for loans for your business, make sure that you begin in the right place. While credit cards can help you pay your regular phone bill, they're too high interest for a long term business loan. Investors look tempting, but you need to decide whether you want someone to own a part of your company or whether you'd prefer to take the risk of bringing on debt. When you're seeking a business loan, know that many larger banks cannot provide a new business with access to loans, since you have no strong credit history yet. Instead, look for lenders that are friendly to small businesses, such as Lendified. Small business lenders understand the needs and challenges of your business.
Develop your personal credit history.
While it seems like your business planning should focus on developing your small business rather than your personal credit history, many business loans depend on the owner's personal credit. When your business is young, it doesn't have the history needed for many lenders to provide a loan based on business history alone. This means that, to be in a better position to secure a business loan, you need to ensure that your personal credit history is exceptional. Pay your phone and electricity bill, and you'll be better able to grow your business. As you grow, look for smaller loans and more flexible lenders who will provide you with financing so you can develop a business credit profile that's separate from your personal finances. According to Entrepreneur magazine, "by taking steps to build a credit profile for your company, separate from your personal credit history, you may be able to access 10 to 100 times more credit than you could as a consumer."
Establish your business as a separate entity with a stable financial history.
Show your stability to launch financing or seek growth financing.
To create an ask that works, show that you're a stable business entity. If you're a small business, you may have missed a step or two that will establish your business as a strong and separate organization. Make sure that you've registered your business as a business, even if it's a sole proprietorship. If you're a small, emerging business looking for financing, create accounts specifically for your business, rather than merging them with your personal accounts. That allows lenders to see how your business is doing. Finally, you not only need to establish credit, you also need to monitor it. Entrepreneur Magazine states that "according to the U.S. Small Business Administration, the credit score of 33 percent of businesses may decline over just a three-month period." Make sure that fraud and errors don't impact your business credit by checking up on this credit regularly.
Understand where you are willing to negotiate.
When you're looking for financial resources for business, you need to know what you need and where you're willing to negotiate. Come into business loan discussions with an open mind about your potential loan term, loan size, and payment flexibility. According to the Business Development Bank of Canada, besides considering the best case scenario, "it's important to have a frank discussion with your banker about what would happen if you found yourself unable to make scheduled loan repayments."
Originally published in SmallBusinessTalk.ca, Canada's fastest growing community of Owners, Experts and Entrepreneurs dedicated to helping Small Businesses plan, grow and succeed.