Navigating Funding Challenges

Welcome to the Small Biz Scoop!???

Our curated biweekly guide provides in-depth financial explainers, practical tips and how-to guides, and timely financial and economic updates. Whether you're looking to master the art of strategic budgeting, explore digital marketing strategies, or navigate the intricacies of business financing, this newsletter has you covered. We're here to empower you with actionable insights that can make a real impact on your small business.?

Last week, the U.S. Small Business Administration announced a plan to unveil a new pilot program offering government-backed credit lines of up to $5 million for small businesses. The new program will take the most attractive elements of their current products to create a simplified working capital line, which will carry an annual fee and maximum interest rate of prime rates plus 3% to 6.5% (which would be roughly 12% to 15% today).?

The pilot is in response to “less uptake” than the SBA anticipated for their current line of credit products (like CapLines and SBA Express), largely due to high interest rates, which have been a major headwind for small business owners seeking financing. While there is no announcement yet about when the new program will roll out, Biz2Credit has you covered with everything you need to know about navigating funding challenges: From what to do if your lender stops funding, insights about the funding process, and tips for getting your business funded.?

Has Your Small Business Lender Stopped Funding? Here’s What to Do?

In March 2024, two major small business lenders, Funding Circle and Amazon, announced they would scale back their business lending programs. These programs provided financing to small and medium-sized businesses and were a vital funding source for many small business owners.?

Just because these lenders closed some of their funding programs doesn’t mean your business has to go without vital resources. If you’re a small business owner looking for funding, keep reading to learn more about what these recent announcements mean, what to do if your funding provider closes, and how to find alternative funding opportunities.?

Which small business lenders have recently closed??

Neither Funding Circle nor Amazon will close their lending programs entirely, but they will stop funding new loans for many new and existing customers. Here’s what to know about the status of each company.:?

Online lender Funding Circle announced it would sell its US business to focus on its UK operations. The company acted as both a lender and a marketplace to provide business loans and connect customers to other business finance companies.?

Funding Circle’s US-based business had reported hard but expected losses in 2023, leading to the decision to sell. A buyer has not been announced at the time of this article’s publication.?

As of March 6, 2024, Amazon has closed its in-house term business loan program. The program, funded directly by Amazon, provided small and medium-sized businesses with term loans up to $250,000 and merchant cash advances up to $10 million.?

Although Amazon Lending will no longer offer these services in-house, it will continue to provide some products through third-party funding companies on an invitation-only basis.?

What to do if your funding provider stops lending?

If your small business funding provider closes, there are several steps you should take to protect your interests and ensure continuity for your business.?

1. Gather paperwork: Collect all the documentation you have about the funding you received from your provider. This will ensure you have the information ready when you talk to a financial expert or accountant for advice about your situation.?

1. Contact your funding provider: Find out what’s happening with your account. Make sure to ask about any money you owe, or that they owe you. It’s essential to understand the status of your account and any financial obligations outstanding so you can plan accordingly.?

1. Seek new funding providers: Explore alternative funding to avoid disruptions to your business. Inform new funding providers about your situation to help ensure a smooth transition. Many funding companies can help your business transition or refinance existing obligations with their own funding programs.?

1. Keep a record: Keep track of all the conversations and transactions related to the closure of your funding provider and the opening of any new accounts. You never know when you might need to reference it.?

Keep reading to learn how to find new funding opportunities, like the new SBA line of credit, in our full article.?

Key Things You Need to Know in the Funding Process?

Securing the right funding can be a critical part of catapulting your business to success. But many small business owners feel overwhelmed at the thought of navigating the financing process. Thankfully, it’s not as hard as it might seem.?

In this article, we’ll talk about the ins and outs of the funding process and empower you to make informed decisions and ultimately secure the financing your business needs to thrive. Here are 8 key things you should know when applying for financing:?

1. Articulate Why You Need Funding?

The first step in the process is to define your financing needs. Are you looking for funds to start a new business, expand an existing one, or bridge a cash flow gap??

Financing options vary depending on your business needs. By starting with your needs, you’ll be able to narrow down the types of financing that may make sense for your business.??

2. Understand Your Business Credit Score?

Your business’s credit history will significantly influence your ability to secure funding, including the terms the lender or financing provider offers. Here’s how your business credit score comes into play in the funding process:?

• Credit Scores Define Trust Levels: Credit scores are numerical representations of your creditworthiness. They provide financiers with a quick snapshot of how responsible you’ve been with credit in the past. Higher credit scores generally indicate a lower risk for lenders, while lower scores may raise concerns about your ability to repay your financing?
• It’s Not Personal, It’s Business: Business credit scores come into play for established businesses or those structured as separate legal entities (such as LLCs or corporations). These scores are based on your business’s financial history and credit relationships. Keeping your business and personal finances separate is vital to protect your personal credit score and improve your business’s creditworthiness.?
• Lenders and Credit Score Thresholds: Expect to find varying qualifications from lender to lender.? Some financiers are more willing to work with customers with lower credit scores, but this often comes at the cost of higher interest rates or stricter terms.??

3. You’ll Need a Business Plan?

Lending institutions offer financing because they believe your business has a high chance of succeeding, and therefore they will make their money back with interest. It’s your job to convince them that this is true, and to do this, you’ll need a well-thought-out business plan outlining goals, strategies, and future revenue projections.?

Read our full article to learn the importance of gathering necessary documentation upfront, comparing interest rates and fees, scrutinizing the fine print for terms and conditions, and fostering strong relationships with financiers to secure better terms for future financing needs.??

5 Tips to Get Funding for Your Small Business?

From gathering the necessary materials to vetting providers and types of funding, the funding process can take a significant amount of time and attention away from your business. As such, you want to ensure that your time and energy spent applying for funding pays off.?

Whether you’re working with an online financier, a traditional bank, or a credit union, there are a few steps you can take to ensure you qualify for funding, and to get that funding as quickly as possible. Financing providers have certain qualifications and practices they look for out of small business owners. Learning how to make yourself appealing for funding opportunities will set you up for success.?

Let’s look at some tips to help get your small business funded.?

1. Determine the amount of funding you need?

The most basic and preliminary step is figuring out how much funding you need. Financiers will expect you to apply for a specific amount, and that isn’t something you should just make up at the moment. Small business loans and financing come in various shapes and sizes (more on that in a moment), and you’ll want to be sure that you’re applying for the type of funding that can provide the amount you need.?

Also consider in this step what your goal is with the money being funded. Sometimes businesses are looking to just get by. Other times businesses are looking to expand rapidly. The amount of money you ask for will greatly depend on your goals with the money you’re hoping to receive.?

2. Determine what kind of funding you want?

There are many different types of funding that small businesses can receive. For example, even raising money from friends and family would count as receiving funding. When you’re first getting started, cash from your acquaintances may suffice, but as you grow, there’s a strong probability that you’ll need something more formal from a business funding provider.?

For example, SBA loans are low cost, but come with lengthy applications and stringent qualifications. Lines of Credit function more like a credit card than a loan, and real estate loans can only be used for, well, real estate.?

Consider the different types of funding options available to you, then match what you need with what’s available. That will help get your small business funded in the way that’s most appropriate for you.?

3. Establish and build relationships?

Receiving funding is not just about a bank or a finance company shelling out some money to you. While there are plenty of online options out there where you can seemingly get money without any effort, it’s still important to prepare for funding by creating a relationship with the funding company, one way or another.?

Receiving funding from a provider is no small task. They are giving you cash expecting a return on their money, and this requires trust. Trust in your business, yes, but also trust in you as the business owner.?

As a small business owner, you mean more to your company than the CEO of a Fortune 500 firm. You’re the face of your business and the way you show up when representing your business will go a long way toward making potential financing providers feel comfortable.?

Consider putting yourself out there, networking, and doing the work to meet with potential funders before you apply. This will help you build relationships that will come in handy when it comes time to request funding. Remember, the best time to look for funding is when you think you don’t need it – this is when your business has the most options, and you will be in control.?

Learn the importance of determining what makes your business unique and being an expert in the options in our full article.?

Additional Links and Resources?

• Read more on our blog?
• Follow us on Instagram and LinkedIn to stay up to date on the latest financial insights?
• See our Success Stories?