Choosing the right path to the capital your business needs is one of the most important factors in the success of your small company. The credit landscape is not built with the benefit of small business in mind generally, but there are lenders out there who cater to new companies as well as programs specifically designed to incubate your success as a small company in a growing economic niche. For your first couple loans, these programs are probably going to be your best resource, because they give you access to financing you need before you have the cash reserves and operating capital that traditional lenders require. SBA loans are designed to help small companies, but they limit how the money is used in a few key ways. Alternative lenders also have options for needs that don’t fit those programs, though, so that brings us to step one.
1. Pick Your Loan Type Based on Your Goals
Unless you’re going for a working capital loan or a cash advance, you need a reason to apply for a business loan beyond wanting to increase your on-hand reserve cash. Most other loans are tied to either an asset you’re refinancing for a purpose or one you are purchasing. In the case of asset financing, it’s often to accomplish a goal like maintaining cash flow or managing seasonal inventory load-ups. For loans on asset purchases, it matters how expensive they are, how much you make, and how much you’re putting down. SBA loans are widely available for purchasing buildings to operate out of and equipment for your new company. They can also help you buy an existing small business, but each of those purposes has its own requirements, so you need to match the goal to the loan structure.
2. Get Your Finances in Order
Before you bother with an application package, you need to be sure you have your company in a financial position to make the case that you’re a good investment. That means healthy financials with timely cash flow management in the recent past, evidence of cash reserves, and a credit score that indicates these factors are a habit and not an exception for your business. Improving or establishing a credit score can take some time, so it is a good idea to get things in order early. If your business is new enough to be prepping for the start of operations, make sure your personal credit score is well-tended because your business won’t have one yet.
3. Deliver the Whole Package
Every application package has different requirements, but you need to make sure you hit them all. That means rewriting your business plan to suit the individual lender. For programs like SBA loans, it might also include documenting additional economic benefits to the community or other eligibility requirements.