6 Key Things You Need to Know Before Looking for Funding

Acquiring a business loan without the right information can put both you and your business in serious debt. To make informed decisions, here are six essential points to consider before seeking small business funding:

1. Start with a Number
When applying for funding, it’s crucial to have a specific amount in mind. This figure should be based on thorough research related to a particular goal for your business, such as buying equipment, negotiating a deal, running a marketing campaign, or renovating. Knowing the exact cost helps you request the right loan amount to cover your needs fully.

2. Funding Sources May Surprise You
There are various ways to fund your small business: personal debt, commercial loans, friends and family, crowdfunding, or alternative products like a merchant cash advance. Loans require repayment with interest, while investors exchange money for a percentage of your business. If you choose an investor, find one who offers more than just money—someone with time, networks, or expertise. If you opt for a loan, choose a lender familiar with your business niche. For example, a merchant cash advance is ideal for retailers, as repayment aligns with turnover.

3. Traditional Loans Require Collateral
Traditional loans, like those from banks, usually require collateral, which could be business assets or personal property, to secure the loan. This protects the lender in case of default. However, alternative lenders like Merchant Capital don’t require collateral but may have other conditions, such as a minimum trading period of 12 months and specific turnover requirements.

4. Identify Gaps and Weaknesses in Your Business
It’s important to know your business’s weak points. Using a loan for growth-enhancing activities helps strengthen those areas rather than just patching up problems. Proactively addressing these gaps positions your business for long-term success and allows you to anticipate future needs.

5. Prioritize Investments
While entrepreneurs often have many ideas, it’s essential to focus on the core initiatives that offer the highest return on investment. Ask yourself which activities will improve your bottom line, increase your customer base, and support your business’s long-term growth. Then, secure funding to make those ideas a reality.

6. Not All Debt Is Bad Debt
Contrary to popular belief, you don’t need to wait until you’re in desperate need to apply for funding. There’s a difference between good and bad debt. Bad debt creates more problems, while good debt boosts your business at the right time, for the right opportunities. Proper use of debt also builds your credit history, making it easier to secure funding in the future when needed.

The Bottom Line
Funding is a powerful tool to grow your small business. Before applying, it’s essential to understand several key factors. These six pointers will help you navigate the world of small business loans and funding, ensuring you approach the right sources and use the funds effectively to grow your business. For more information on how we can help fund your business’s growth, contact us today.