Building a successful business is both rewarding and challenging. One of the biggest challenges is access to capital. According to the 2017 Federal Reserve Report to Congress, “the relatively elevated costs of evaluating small business loan applications and the ongoing costs of monitoring firm performance have made loans to small businesses less attractive for some lenders.” This economic reality has prevented many enterprises from expanding. As a business owner, you must be proactive when it comes to acquiring a line of credit or working capital. By developing a strategy before pursuing capital, you will increase the probability of success.
Here is how you can obtain financing to grow your business.
How to obtain financing to grow your business
Revisit Your Business Plan
We’ve all heard, “If you fail to plan, you plan to fail.” While cliche, it is important to note when it comes to building your business. If you have developed a business plan, now is the time to revisit. It is important for you to update your plan to show that you are an attractive candidate for financing. You want to tell a prospective lender the story of your business through numbers. For example, you can highlight the increases in operating margins and revenue per employee over the course of a three year period. The upward trend can give lenders confidence that you are growing and will be able to service the debt payments.
Control your finances
While acquiring and serving your customers is your main priority, managing your finances is crucial. If you haven’t done so, developing and monitoring a budget can help you keep spending under control. You will also benefit from working with your business advisor to develop a forecast for your revenues and expenses.
As the lead decision-maker, you should be familiar with your accounting software. Work closely with your business advisor to analyze and interpret financial reports to know how you are performing.
With tax season around the corner, it’s not too early to have a conversation with your accountant about maximizing your credit and deductions. Develop a tax plan that you can work on all year round to reduce your ongoing tax liability and keep more money in your business.
Build lending relationships
In business, relationships are paramount to success. As a business owner, one of the best relationships you can develop is with a business banker. If you haven’t done so already, introduce yourself to the business banker at the institution that you bank with. Tell them about your business and the customers that you serve. They can be a great source of information on financing options and how you can position yourself to obtain financing.
If a traditional lender isn’t a good fit at this time, try an alternative lender. A community development financial institution, or CDFI, is a nonprofit lender who provides financing to small business owners. You can find a list of CDFIs in your area on the Opportunity Finance Network’s website.
Scaling a business takes a considerable amount of resources, including capital. The great news is that there are many lending options available today. With the right plan in place, you can increase the probability of getting approved for financing to grow your business.