There are many reasons why a business owner might apply for business funding, such as needing to cover payroll this quarter, or losing one of your most valuable customers. If this sounds familiar, know that you’re not alone.

Securing capital can be a strategic way to grow a business that’s already successful and to also prepare for the future, too. In either scenario, there are key questions that a business loan advisor would suggest you consider as you start to think about securing business loans and working capital:

  • How do you know how much funding you really need?
  • What are the different types of business loans that are available?
  • What should you do (and not do) once you start the application process, so that you’re attractive to lenders?
  • How do you make the best possible financing choice for your business?

Our expert business loan advisor team answers these questions below. For even more detail, listen to Season 4, episode,14 of our Business Results Radio Podcast.

Calculate How Much Business Funding You’ll Need

The best first step is to take a good look at your business financials. Do you have a business plan, projections, and growth goals mapped out for the next 3-5 years? If not, take the time to put this in place now, before you apply for funding. Factor in how much more you could sell or earn if you had additional capital. Also run scenarios for several different loan amounts. If this feels overwhelming, speak to a business loan advisor, your accountant, or an interim CFO to help you. Taking an honest look at your business financials and forecasts now will tell you:

  • How much money you should borrow now, and how much you should borrow later (lenders call these “tranches”)
  • The range of interest rates that you can afford
  • Whether you can realistically pay your lender back within the term of your business loan
  • The business growth you can anticipate when you take a loan

If you do this thinking upfront, your loan application will also be much more attractive to lenders.

Often entrepreneurs assume that business loans are just a way to “make ends meet” in dire circumstances. They don’t realize that they can (and should) secure funding for a variety of reasons to maximize revenue, profit, and grow their business, even if their business is already thriving. Our business loan advisor notes the following as just a few common reasons that companies may apply for loans:

A Sudden Upswing in Business: You could experience an unprecedented demand for your products or services due to socioeconomic reasons (think of the surgical mask or plexi-glass producers during the COVID-19 pandemic). Or a new customer could suddenly sign a huge contract. In either case, you could need business funding to secure the necessary staff, machinery, equipment, and materials to meet increased customer demand.

Competitive Pressures: If you’re losing deals to another company in your space, think about merging with them or even acquiring them. You could purchase software or intellectual property to boost your business.

Equipment Upgrades: If your company is in logistics, trucking, waste management, construction, or a similar industry that relies on heavy machinery, it’s often cheaper and more cost effective to upgrade your existing equipment, rather than paying for frequent and costly repairs. You will be happy to know, there are lenders who specialize in loans and equipment financing for this exact purpose.

Geographical Expansion: You might decide to open a new office or hire staff in a specific region to keep up with demand or competitors.

Sales and Marketing: You could secure funding to pay for software, a new website, consultants, or full-time staff to help you bring in more leads and generate sales.

The Different Types of Lenders and Business Loans

When owners need a business loan, they often approach the bank that holds their operating account. Banks can be a great financial partner, but they can be slow and bureaucratic. You should know that they aren’t the only option! These types of alternative financing don’t involve banks and may be a fit for you:

Private Equity Investors: While raising equity isn’t a loan, it’s a source of capital so it’s an option that’s worth mentioning. These professionals provide funds to businesses in exchange for a percentage of ownership of your company. This can be a viable option for some, but if you go this route, remember that you’ll give up some control of your business, too.

Industry-specific Financing: There’s a wide range of lending products for different types of businesses. For example, let’s say you need to invest in heavy machinery to grow your business. You could find an equipment lender. Often, these types of loans are fairly reasonable.

Receivable Financing: Your business might rely on large purchase orders (well over $100,000) with long lead times. There are lenders that will provide you with money now, even while you’re waiting to be paid for your products or services.

Business Line of Credit: If you’re looking for money on a flexible, as-needed basis, explore a line of business credit. Similar to a credit card, you can borrow funds up to the credit limit on your account over the course of the draw period. Find out how much of a credit line your bank is willing to give you and, if you need more, know that there are other options for you.

Tips and Advice From a Business Loan Advisor: Applying for Funding

When you’re ready to apply for business financing, these are important things to keep in mind:

Put an Operational Structure in Place for Growth: When you receive funding, will you have the right people and processes in place to support an uptick in business? Lenders look favorably upon businesses who are actively planning for the “what ifs”.

Establish a Long-term Business Loan Roadmap: Experienced entrepreneurs who grow businesses very quickly understand when and how often to inject cash into their business. They know that additional funding creates and accelerates cash flow. If you look at your current business plans, forecasts, and projections, when might you need funding over the long term? How much might you need based on your growth goals? Do some initial thinking and commit your ideas down on paper. You could also network with business leaders in your area or turn to an intermediary to learn from them. These are a few easy steps to take to build a business loan roadmap. Lenders will appreciate your long-term perspective. Our expert business loan advisor team can help.

Calculate the ROI of this particular business loan: All business decisions have a return on investment, and it’s important to look at the bigger picture, not just one variable in isolation. For example, every loan product will have an interest rate. There’s a cost of capital and it’s changing all the time. For example, if you take a loan out of $1,000,000 your interest rate could be 9%, 12%, 17%, or even higher. The interest rate is just one variable. Different lenders will have different payback periods, too. What if you got a better interest rate but had to pay the loan back more quickly – even these factors are in isolation before you know what the loan enables you to do. To determine whether you should take a business loan, ask yourself:

  • “Can I operate and grow my business without taking this loan?”
  • “Can I fund part or all of this loan myself?”
  • “Can I pay the lender back in this amount of time?”
  • “How much more money can I make if I take this loan?”

If you apply for a loan and the interest rates seem astronomical, or if lenders won’t give you the amount of money you need, take a step back and layer in what the loan will enable you to do. Also ask yourself if you can get the same amount of funding from another source, or even several sources. It is possible that securing funds will be difficult for you right now. Something about your business may be raising red flags. It could be the structure of your business, your pricing, or the way your financials are presented. Figure out what it is, get help to fix these issues, and then reapply for funding. Working with an experienced business loan advisor like Win Enterprises can help you secure the financial resources you need.

Build Relationships with Lenders: Don’t think of your lender as a “one and done” solution. If you are focused on growing your business, you may need money down the road, beyond this first investment. In a year or two, you could hit a period of extreme growth, or you might have trouble covering payroll and expenses. Keep in touch with your lender and treat them like a true partner. Update them as your business evolves and grows. That way it will be more efficient to secure financing when you need it because you’ll be a known entity. Your lender will be familiar with your financials and how you run your company. It’s also a good idea to network with lending professionals in your city or region so you can call on them in the future if needed.

Find an Intermediary: Experienced professionals can help you navigate the process of securing a loan, so you can get the right kind of funding for your business in less time. These service providers have relationships with hundreds of lenders, including many in niche industries. For example, Win Enterprises can help you get creative to find the best financing for your particular business. We can help business leaders and business owners obtain loans between $500,000 – $100,000,000 from lenders in the US and Canada, and by using our unique process and technology we might get you a “yes” when other lenders already told you “no”. Contact our business loan advisor team today to discuss your needs.

Get the Funding You Need – Leverage Our Business Loan Advisor Expertise

If you’re a small business or a middle market company that’s considering business financing and business loans, remember to take a step back and get your business plans and financials in order before you fill out applications, and ask critical questions. Also know that there are a myriad of creative financing options and strategies available to you, beyond traditional bank loans.

If it would be helpful to work with a business loan advisor who can create a strategy and guide you through the funding process, reach out to us and set up a complementary consultation. We will work hand-in-hand to refine your goals, implement impactful tactics, and help achieve sustainable growth, profitability, and financial stability.