How To Fulfill The Financial Needs Of Small Businesses?
The financial needs of your small business can seem endless and everything you need to do for improving your business requires capital in addition to the hard work you put in. However, it is not always easy to find the right path to take for finding the financial solution for your small business.
Even though there are several options out there, you have to do enough research to find out which option is viable for your business. When you look into the funding of different lenders, it is very important to thoroughly understand the lending options you have, their benefits, challenges, and all the risks involved in the lending process.
According to financial experts, you must give great attention to the guidelines and requirements of each lending company because you will come to know that each lender has different guidelines and requirements.
You Need Money To Make Money
The old saying, “it takes money to make money” could not be truer in the case of small business owners. Every aspect of your business requires funding and also you have to dedicate your hard work, skills, and a huge amount of time.
There are a lot of business demands that need proper funding. Starting from your daily operations to the repairs and renovations, you need funding or else you cannot develop your small business. You cannot always use your savings to pay for utilities, rent, payroll, etc. All these day-to-day expenses need regular funding. Another aspect of the small business that needs funding is the purchase of supplies and equipment.
Marketing and advertising are very essential for every business and it is quite expensive. In order to get the word out to potential customers, you need to invest in proper marketing and advertising. Regular repairs and renovation are also important for every small business because you have to stay updated with the current trend. When your business becomes successful, you might need to increase the business space for making it more efficient and that will cost extra money.
From Where Do You Get The Funding?
Proper research and innovative, creative thinking are much needed for starting a small business. If you ever wondered how most successful entrepreneurs are getting ahead, that is because they are seeking better lending solutions all the time. For that, you need to look into the different aspects of your small business from a different angle.
You need to carefully choose the funding solution because each option available is very different from the other and has its own benefits and drawbacks. You should have a good knowledge of what you are getting into or otherwise, you might get into trouble in the future.
Let’s take a look into each of the funding options available for small businesses.
Banks are the traditional lending option for any type of business but obtaining a loan for small businesses has become more difficult than ever because of the recession in 2008. Since then most banks are considering small businesses as high risk and made the loan approval process more complex. If you apply for a business loan in banks, you can expect a lengthy application process that usually lasts for more than 30 days, and still, you might get rejected.
For the application process, you need to submit a well-articulated, extremely detailed business plan to the bank. The business plan should contain all the important details about the product or service that your business provides and also contain a detailed analysis of your target demographics. You also need to submit a proper marketing plan and the details of your competitors.
To get even a slight chance for approving your loan request, you need to have an excellent credit score and a lengthy business history. It might be hard for you to have a good credit history if you are new to the business. The banks will also look for your bank records, tax records, and all financial records of your business. Most importantly, you need to submit valuable collateral.
The main advantage of a business loan from a bank is that the interest rate will probably be the lowest among other lending options. However, the long approval process will keep away entrepreneurs who need immediate funding. Even though you wait for a couple of months, you might still get turned down. There will not be any flexibility for the monthly payment of the loan.
The functioning of the credit union is almost similar to banks but they are owned by their customers. If you want to apply for a business loan from a credit union, the main criterion is that you should be a member of the credit union. That means you should have saving accounts in the union. Just like in a bank, you need to prove that you have a good credit score and a solid credit history for loan approval. You also have to submit a detailed business plan and all your tax records.
The biggest benefit of a credit union, when compared to a bank, is that the approval process and the loan requirements are a bit easier. Like the banks, here also the interest rates are lower. Sometimes the approval time of the loan may vary and usually takes 30 days or longer. Collateral is necessary for the approval of a loan and without a good credit score, you won’t get the loan.
Small Business Administration
Small business administration (SBA) is a government-backed organization designed to help small businesses across the country. The SBA won’t offer you a loan but they connect you to the banks in their network. For getting a loan through small business administration, you have to submit all types of documentation that a bank would ask.
The main reason why many small business owners are looking for SBA loans instead of other lending options is that you will get more time to pay off the loan when compared to other lending options. Since the program is backed by the government, the interest rate will be reasonable. However, the application process is more intense and you have to provide all the necessary documentation for the application process. Also, approval will often take more than 90 days.
According to statistics, alternative lenders provide more than 75% of business loans. They are much easier than a bank, credit union, or SBA. You can easily fill out the application form online and they will ask for a couple of bank statements. The approval process will be completed in 2-3 days.
There is no need for an excellent credit score to get a business loan from alternative lenders. Also, you don’t have to submit a business plan or your resume. The main problem is that the interest rate is higher than other lending options.
There are numerous funding solutions available for you irrespective of the situation you are in. You should consider all your options before you decide on the right funding option. If you have any questions regarding your working capital needs, contact Building Block Capital now.