Launching a business is exciting. But it often comes with a lot of stress, much of which can be at least partially avoided with the right preparation.
There are currently about 28.8 million small businesses operating in the U.S. And while that (and their 56.8 million employees) might seem like a large number, the fact is that about 90% of startups and small businesses fail within the first few years. One of the top reasons for business failure is lack of capital. Statistics show that without the proper finances behind your business, it can be a challenge to keep any business afloat.
Having finances in place is an important part of launching and running a successful business. But today’s small business owners are generally seeking fewer loans than in the past. This trend can be attributed, at least in part, to banking consolidation and regulations, small loan amounts that don’t benefit banks and less-than-great credit in the aftermath of the 2008 financial crisis.
But access to funding is the very thing that can help get small businesses get off the ground and into the game to drive the economy forward.
Are you thinking of financing your business? Here are 5 steps you should take for a friction-free loan process.
Define your funding needs
Funding needs are unique to every business and owner because they often depend on your specific goals and vision for your company. As you start to think about taking out a loan, you should have a clear vision for what the money will be used for. Create a roadmap of where your business is going, how you will get there and the role that funding will play in it. This will help ensure that you get the right loan (and amount) for your needs.
Find the right loan
There are a number of ways to get funding, like small business lines of credit, accounts receivable financing, working capital loans, small business term loans, equipment loans and SBA loans. Finding the right loan program can take some research. But know this. Some loan types may be short-term or have a low funding cap. The Small Business Administration (SBA), however, backs loans for small businesses for a variety of needs, including working capital. These loans are generally friendlier to small businesses, offering lower rates and funding up to $5 million.
Do your research on lenders
Banks, lenders, peer-to-peer lending sites. Against a crowded backdrop, it’s important to know that not all lenders are created equal. As you start your search, look for lenders with a track record of funding in your industry, or a history of helping a variety of businesses get off the ground. It’s also crucial, if you decide on an SBA loan, to be sure the lender you’re courting is SBA certified.
Get your statements in order
Your finances and documentation might be all over the place. But as you start to zero in on a lending company, it will make your life much easier (and the process faster) if you have financial documents ready for your lender’s review. Look over balance sheets, cash flow statements and income and loss statements to make sure they’re as complete and correct as they can be.
Request a quote then fill out an application
It’s generally a good idea to have things like your business name and DBA, legal structure, two to three years of financial statements, projected financial statements, business credit report, business plan and your business bank statements handy as you set out to start the quote and application process. Having everything you need (your lender will confirm all needed documents with you after you request) will ensure you can easily fill out the application fully, and get the process moving faster.
Ready to talk to a lender who understands the unique challenges you face as a small business owner? Fill out a free quote request now.