Banks are feeling more optimistic about small business lending again.
The Biz2Credit Small Business Lending Index recently reported that the
small business loan approval rate among big banks – those with $10
billion or more in assets – rose to an all-time high in December 2013 to
17.6 percent, up from 17.4 percent in November. And compared with the
year before, approval rates have jumped almost 20 percent.
This is great news for small business owners looking for an infusion
of capital. Even those who have been rejected for loans from big banks
in the past several years may now have a good chance of scoring a loan.
Just be sure to do some essential preparation in order to lock in that
financing. That prep work includes:
Gather Important Financial Documents
Each bank application may require slightly different information.,
but every bank is going to want copies of your business bank statements
and tax returns for the last three years. You might also need to provide
copies of your balance sheet, and a current statement of your accounts
payable and accounts receivable.
Be Familiar With Your Credit Score
Your loan application is not determined solely on your business credit score, but it does play a big role. You can obtain a copy of your report from Dunn & Bradstreet for a fee. You can check for errors and prepare yourself to explain any worrisome issues to the bankers.
Present a Profitable Business Plan
Create a business plan that is so strong it will make your case for
you. It should easily show banks how you plan to earn the money to pay
back the loan and how your business is (or soon can be) on a successful
financial course.
With a little research and preparation, this year can be the year your company obtains all the funding it needs to thrive.
5 Temmuz 2014 Cumartesi
Small Business Loans: Ready, Set, Apply!
Having enough funding is a huge concern for small business owners.
After friends and family have been tapped and bootstrapping doesn’t
cover the shortfall, many entrepreneurs turn to small business loans.
Preparation is key to successfully obtaining a loan from a lender. Here
are four ways to make sure you are prepared before you apply.
1. Determine Your Cash Needs
Banks will want to know exactly how much money you need to operate. You can prepare for that question by making a cash-flow projection. This determines your cash flow needs from the time you purchase goods or services from suppliers to the time you collect payment for your business’ sales.
2. Plan an Effective Use of the Money
Not only do banks want to know how much funding you need, but they also want to know how you are going to use it. Your plan for the borrowed dollars should help to grow the business, not just pump money into routine expenses. Each dollar you borrow should help you grow your business profits so that the lenders’ investment is worthwhile.
3. Prove You Can Repay the Funds
Be prepared to show lenders how you will repay their small business loan. This means that your monthly repayments should be manageable within your current cash flow projections. You should be able to show the bank that you can still make your payments even if you have a bad month here or there.
4. Be Sure You Meet the Minimum Requirements
Applying for a small business loan and not getting it can actually hurt your chances of being approved the next time. Every loan denial on your record makes you less appealing to lenders. Before you apply, talk with the lender to make sure you fit the specific requirements of the bank’s loan program. Is your credit score high enough? Do you have enough assets to use as collateral? Once you are fairly certain you will be approved, submit your application.
1. Determine Your Cash Needs
Banks will want to know exactly how much money you need to operate. You can prepare for that question by making a cash-flow projection. This determines your cash flow needs from the time you purchase goods or services from suppliers to the time you collect payment for your business’ sales.
2. Plan an Effective Use of the Money
Not only do banks want to know how much funding you need, but they also want to know how you are going to use it. Your plan for the borrowed dollars should help to grow the business, not just pump money into routine expenses. Each dollar you borrow should help you grow your business profits so that the lenders’ investment is worthwhile.
3. Prove You Can Repay the Funds
Be prepared to show lenders how you will repay their small business loan. This means that your monthly repayments should be manageable within your current cash flow projections. You should be able to show the bank that you can still make your payments even if you have a bad month here or there.
4. Be Sure You Meet the Minimum Requirements
Applying for a small business loan and not getting it can actually hurt your chances of being approved the next time. Every loan denial on your record makes you less appealing to lenders. Before you apply, talk with the lender to make sure you fit the specific requirements of the bank’s loan program. Is your credit score high enough? Do you have enough assets to use as collateral? Once you are fairly certain you will be approved, submit your application.
How Much Cash Does Your Business Need on Hand?
Many small businesses, especially in their early days, discover a
need for a cash infusion to keep operations running smoothly. Small
firms often turn to working capital
loans to help bridge the gap in funding. If your business is
considering such a loan, you will need to a good idea of how much money
is required. Lenders will want a detailed plan of how you plan to use
their loaned dollars. So how do you know how much cash you need on hand?
First, you can take a look at your operating expenses. This includes your overhead costs, things like monthly rent and staff salaries as well as the money you have to spend on inventory and to market your product/service. Don’t forget to factor in taxes and current loan debt payments. Then you can calculate your total current assets – including bank account balances, accounts receivable and the value of any real estate property, machinery or inventory. Subtract the operating expenses and any other liabilities from your assets and then divide by 365 days to determine how much money you currently have each day to work with. Based on that number you can figure out how much more you need for your business to thrive.
Another factor to take into consideration is any seasonal dips in income. You will need to have enough working capital on hand to cushion those months when cash is scarce, not just your typical months. Ideally it would be nice to have six months’ worth of operating expensed saved up in order to prevent any breaks in service during the leaner times.
Beyond knowing how much working capital your need, you may want think about requesting additional funds from your lender for the purpose of improving or expanding your business. Hiring new staff, boosting your marketing budget or updating equipment are all worthy pursuits that could be financed with your working capital loan.
First, you can take a look at your operating expenses. This includes your overhead costs, things like monthly rent and staff salaries as well as the money you have to spend on inventory and to market your product/service. Don’t forget to factor in taxes and current loan debt payments. Then you can calculate your total current assets – including bank account balances, accounts receivable and the value of any real estate property, machinery or inventory. Subtract the operating expenses and any other liabilities from your assets and then divide by 365 days to determine how much money you currently have each day to work with. Based on that number you can figure out how much more you need for your business to thrive.
Another factor to take into consideration is any seasonal dips in income. You will need to have enough working capital on hand to cushion those months when cash is scarce, not just your typical months. Ideally it would be nice to have six months’ worth of operating expensed saved up in order to prevent any breaks in service during the leaner times.
Beyond knowing how much working capital your need, you may want think about requesting additional funds from your lender for the purpose of improving or expanding your business. Hiring new staff, boosting your marketing budget or updating equipment are all worthy pursuits that could be financed with your working capital loan.
Understanding the Funding Stages of Business
Starting a business and bringing it successfully to maturity requires
lots of cash. Fortunately it does not all have to be provided by the
business owner. As a business grows, the sources of funding expand as
well. Here’s what every start-up should know about the traditional
rounds of funding
Seed Round
After an entrepreneur gets her big idea, the next step is to drum up enough cash to put the product or service together – to actually bring the idea to life. This stage of funding is often called the Seed Round, with money coming from the entrepreneur’s own savings, a home equity loan on his property, or from gracious and/or interested friends and family. This is the money needed to get off the ground.
First Round or Series A
After the business takes off and demand proves sufficient but the firm is not yet stable enough to turn a profit, business owners often begin what is called their Series A round of funding, otherwise known as first round or start-up financing. This is when outside i of angel investors – start associating with the company, pouring badly-needed cash into the business in exchange for equity shares.
Second Round or Series B
As the business expands more capital will be needed for hiring new employees, marketing, and potential partnerships. At this point, businesses can open up a Series B round of funding or second round to a new crew of investors. They will have to pay more for their equity stake than the initial investors did because the company is now worth more, but they still get the profits of investing in a growing, successful firm.
Series C, D, E…
Series B can be repeated as many times as necessary. With more and more investors putting in their capital and enjoying the benefits of being part of the company.
In all the funding stages, owners have to balance the cost of giving up complete equity control of their brainchild with the profits of growing a company sans having to fund it completely on their own.
Seed Round
After an entrepreneur gets her big idea, the next step is to drum up enough cash to put the product or service together – to actually bring the idea to life. This stage of funding is often called the Seed Round, with money coming from the entrepreneur’s own savings, a home equity loan on his property, or from gracious and/or interested friends and family. This is the money needed to get off the ground.
First Round or Series A
After the business takes off and demand proves sufficient but the firm is not yet stable enough to turn a profit, business owners often begin what is called their Series A round of funding, otherwise known as first round or start-up financing. This is when outside i of angel investors – start associating with the company, pouring badly-needed cash into the business in exchange for equity shares.
Second Round or Series B
As the business expands more capital will be needed for hiring new employees, marketing, and potential partnerships. At this point, businesses can open up a Series B round of funding or second round to a new crew of investors. They will have to pay more for their equity stake than the initial investors did because the company is now worth more, but they still get the profits of investing in a growing, successful firm.
Series C, D, E…
Series B can be repeated as many times as necessary. With more and more investors putting in their capital and enjoying the benefits of being part of the company.
In all the funding stages, owners have to balance the cost of giving up complete equity control of their brainchild with the profits of growing a company sans having to fund it completely on their own.
Business Equipment: Leasing vs. Buying
Business equipment is essential for every business, whether its
computers, industrial machinery or an office. There are basically two
options for securing that equipment – buying it, whether outright or by
financing it, and leasing, which is like renting or in some cases,
renting to own. The choice between buying and leasing the needed
supplies can be a tough one for business owners. Each one offers its own
unique benefits.
Benefits of Buying
Benefits of Buying
- For those companies that can afford to buy equipment outright, the savings will be much greater in the long run.
- The business owner has complete control of the equipment and is free to use it or sell it as desired.
- The equipment may be used as collateral for other small business funding loans.
- There is a smaller cash investment at the beginning. Leasing allows for manageable monthly or yearly payments, which is especially nice for startups already strapped for cash. This is the only way some businesses can afford to get equipment right away.
- Leasing instead of buying means businesses can use their lines of credit or small business loans for working capital or other essential functions.
- Leasing allows business owners the opportunity to try out new equipment without the long-term commitment of buying, giving them a chance to see if it is a good fit for their needs. If it isn’t, after a short period, it can be switched out for a new model or just returned. Lease terms can often be as short as 12 months.
- Most lease agreements provide for the maintenance of the equipment, freeing up more cash for business owners to use elsewhere.
- There may be tax benefits available as lease payments are deductible as business expenses.
Alternative Ways to Fund Your Business: Inventory Financing
Business is going well and you are receiving orders faster than you
can fill them and faster than you can pay for the supplies. Traditional small business loans are often hard to get but you still need to find funding somehow. If this sounds like your situation, you may benefit from a bank line of credit called inventory financing.
Inventory financing is a loan that uses your company’s inventory as collateral. This can be a great option for firms who have plenty of cash tied up in their inventory but could be using it to better advantage elsewhere. It is also good for companies who have a high turnover rate of inventory.
In order to qualify for inventory financing, you need to have inventory on hand worth a considerable amount of money and you need to have a good track record of successful sales. Unfortunately, for this reason inventory financing is not a good fit for startup companies. You will also need to have a respectable business credit score. Even though the inventory acts as collateral, lenders have no real interest in having to repossess and resell it so they look for borrowers who are extremely likely to repay their loans.
If you meet both of those requirements, you will need to show the lender that you manage your inventory well. This means providing an overview of your inventory management system as well as the safeguards – if any – you have in place to protect your stock. Lenders will want to see that you keep only enough inventory on hand to keep business running, not so much that you are wasting cash with overstocked shelves. Lenders will also want to take a look at your actual sales orders to see how fast and how well your product is selling. And because the inventory acts as collateral, once you get an inventory finance loan, be prepared for inspections of your stock now from the lender.
While not the perfect solution for every business, an inventory financing line of credit can be a helpful resource for those need a little cash to get them through production cycles.
Inventory financing is a loan that uses your company’s inventory as collateral. This can be a great option for firms who have plenty of cash tied up in their inventory but could be using it to better advantage elsewhere. It is also good for companies who have a high turnover rate of inventory.
In order to qualify for inventory financing, you need to have inventory on hand worth a considerable amount of money and you need to have a good track record of successful sales. Unfortunately, for this reason inventory financing is not a good fit for startup companies. You will also need to have a respectable business credit score. Even though the inventory acts as collateral, lenders have no real interest in having to repossess and resell it so they look for borrowers who are extremely likely to repay their loans.
If you meet both of those requirements, you will need to show the lender that you manage your inventory well. This means providing an overview of your inventory management system as well as the safeguards – if any – you have in place to protect your stock. Lenders will want to see that you keep only enough inventory on hand to keep business running, not so much that you are wasting cash with overstocked shelves. Lenders will also want to take a look at your actual sales orders to see how fast and how well your product is selling. And because the inventory acts as collateral, once you get an inventory finance loan, be prepared for inspections of your stock now from the lender.
While not the perfect solution for every business, an inventory financing line of credit can be a helpful resource for those need a little cash to get them through production cycles.
When to Take on Business Debt
Funding
is often a major issue for start-ups and newer small businesses.
Several loan programs are available to help entrepreneurs get the cash
they need to finance the operating cycle, but borrowing money can also
be costly. How can you tell when it’s a good idea for your business to
take on debt? Here is a little financial food for thought:
Good Debt
It is a smart idea to take out a loan when the upfront money will increase your firm’s net worth or help save costs in the long run. This can include things like installing solar panels that will eventually cut your company’s energy costs dramatically and generate large savings. Good debt might also include a commercial mortgage for business property – a warehouse or office space, for example – that would be tied to a physical asset which is likely to increase in value over time.
Taking out a small business loan for a piece of equipment or system that will save your firm time can be a wise investment as well. When the owner or employees can do their jobs in less time, it boosts productivity, hopefully increasing revenue and profits.
Bad Debt
It is a bad idea to take on small business debt when the interest rate is exorbitant, like with many payday loan outfits. It is important to be sure you will not be paying more in interest and fees than the product you are financing is worth.
Also, consider how the services, products or equipment you are financing will add value to your business. If if won’t speed up your production cycle, save you money overall, or bring in added clientele, it may not be worth the borrowing costs.
Neither is it a good idea to borrow money simply to repay existing debt. Borrowed money is best used when moving the business forward, not just keeping it from digressing.
Borrowing for business needs makes sense when you plan to use the money to grow your firm. Be sure to shop around among lenders for the best interest rates and terms. Do the math to know if the investment will pay off for your company.
Good Debt
It is a smart idea to take out a loan when the upfront money will increase your firm’s net worth or help save costs in the long run. This can include things like installing solar panels that will eventually cut your company’s energy costs dramatically and generate large savings. Good debt might also include a commercial mortgage for business property – a warehouse or office space, for example – that would be tied to a physical asset which is likely to increase in value over time.
Taking out a small business loan for a piece of equipment or system that will save your firm time can be a wise investment as well. When the owner or employees can do their jobs in less time, it boosts productivity, hopefully increasing revenue and profits.
Bad Debt
It is a bad idea to take on small business debt when the interest rate is exorbitant, like with many payday loan outfits. It is important to be sure you will not be paying more in interest and fees than the product you are financing is worth.
Also, consider how the services, products or equipment you are financing will add value to your business. If if won’t speed up your production cycle, save you money overall, or bring in added clientele, it may not be worth the borrowing costs.
Neither is it a good idea to borrow money simply to repay existing debt. Borrowed money is best used when moving the business forward, not just keeping it from digressing.
Borrowing for business needs makes sense when you plan to use the money to grow your firm. Be sure to shop around among lenders for the best interest rates and terms. Do the math to know if the investment will pay off for your company.
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