Navigating small business financing can be tricky, but with the right strategies, you can manage challenges effectively. Here are five ways to help you along the way:
- Maintain a Strong Personal Credit Profile: Lenders often rely on your personal credit score to assess the risk of lending to your business. Why, because banks will use you as the guarantor for the loan. Lenders lend, they are not investors taking a risk, YOU are the one taking the risk. ?Keep personal credit in good standing by paying bills on time, reducing debt, and regularly reviewing your credit reports to ensure accuracy.
- Maintain a Strong Business Credit Profile: Not only will banks look at your personal score, but often times they will look to see if the business has any current credit issues, especially of you’ve been around for a while. If you’ve been operating for some time, and have no business credit score for your company, it could raise a red flag. Be sure that you get started as early as possible with your business credit history to ensure that lending is easier, but you can also add value to your company when you sell it in the future!
- Diversify Your Funding Sources: Don’t rely on just one form of financing. Consider a mix of options such as small business loans, lines of credit, grants, crowdfunding, or even angel investors. Some business owners will use their own house to get funds, and sometimes borrow from friends and family. (Although I don’t encourage this path) Having multiple options gives you more flexibility and reduces the risk of over-reliance on one funding stream.
- Build Cash Flow Projections: Clear, realistic cash flow forecasts can make a big difference in securing funding and managing your business's financial health. You can also use these projections to show lenders that you have a solid plan for how to use and repay any borrowed funds. In fact, many banks will require this when you’re looking for capital funds. You can easily have your accountant perform this step for you if need be.
- Leverage Government Programs and Grants: Many governments offer grants, low-interest loans, or guarantees for small business owners. Research federal, state, or local programs that may apply to your business—these can often provide favorable terms and lower-risk options for financing.
- Consider Alternative Financing: If traditional lending sources are not an option, explore alternative financing methods such as peer-to-peer lending, invoice factoring, or merchant cash advances. While these can sometimes carry higher fees, they can also be more accessible and flexible for small businesses in need of quick funding.
By combining these strategies, you can better navigate financing challenges and position your small business for long term, sustainable growth.
