Funding Your Small Business

It takes a lot of cash to run and grow a business. If you can’t find the right investors, you may have to consider taking out a business loan. Of course, you wouldn’t want to put your business in jeopardy with a loan that has high interest rates and is costly to repay. Below are some steps that may help you find a loan that works for you. 

* Your Business Plan. Banks typically want to see your realistic financial forecast, your marketing strategies, and the details of your product/services. They will also want to know your plans for the future growth of your business and how you will repay the loan without interfering with your profits. 

* How much cash do you need? Make a list of the things you need and your best estimates of how much each will cost. For example, if you need new equipment, figure out how much and the cost of everything. You will need to calculate your debt-service-coverage-ratio (DSCR). You can do this by dividing your annual net operating income by your total annual debt commitments. This will help the bank determine if you will have enough cash flow to repay the loan.

* Your credit score. Typically, you can begin building your credit rating by establishing a business identity, getting a tax ID number from the IRS, and credit card with your business name on it. If you’ve been in business for long enough to get your own credit score, the business may qualify for a loan on its own. Before you apply for a business loan, pay your debts and make sure all your payments are made on time. If there isn’t enough credit established you may need to co-sign your business loan, which will also put your personal credit on the line. 

* Small business loans. One option may be to borrow from the Small Business Administration (SBA). These loans can be between $500 and $5.5 million and come with a guarantee from the SBA to allow low interest rates and reduce risks for lenders. These loans are usually only available for those business owners who have invested their own money in the business and can’t get similar financing terms by other means. 

* Borrowing options. You should explore all your options for borrowing, whether it’s banks, SBA, online lenders, etc. Other options could be home equity loans, though your personal credit could be damaged if your business doesn’t repay the loan. 

* Loan terms. Before you actually take out a loan for your business you should consider all of the loan terms. You should compare interest rates, repayment terms, late payment fees, advance payment penalties, and the amount of your monthly payments. 

After you have all your options on the table, you will be able to make a more informed decision before you take a business loan. There are risks when you take a loan but there are also rewards when your business grows successfully. At Summit CPA we offer multiple resources to help you get your business on the road to success. For assistance contact our office at (866) 497-9761 to schedule an appointment with our advisors.