Whether you’re hoping to kick your business off the ground, help it grow to new heights, or to implement new strategies and projects, most companies need a little extra funding at some point. No matter where you get it from and what it’s for, however, there are a few considerations that apply across the board. In both the application for and the application of the funding you’re hoping to acquire, here are a few things you always need to ensure you know ahead of time.
How much you need and why
You should never treat the funding you borrow as “extra money” to be spent however you please. Instead, you should borrow and seek investments strategically. This means finding out what your aims for funding are, first and foremost. Are you borrowing to invest in new equipment or to scale the business? If so, make sure you plan out how much you need in order to reach those goals and don’t ask for too much more. It’s the best way to make sure you don’t end up in too much debt and also to make sure you don’t go spending the money you acquire on other costs, instead.
All the right intentions
As mentioned, it is crucial that you know what, exactly, you’re borrowing for. You can borrow to restructure the business and cut costs while you do it, to expand, to make new one-time expenses, and for a whole multitude of other reasons. But it’s wise to be aware of some of the reasons you shouldn’t be using when you borrow cash, as well. A new business idea without any research is an extraordinarily risky move, for instance. On the other hand, some people borrow purely to keep up with unhealthy financial practices, like borrowing to keep pumping money into expenses that have only proven to be losses or only because you’ve maxed out your other forms of credit.
The road-map to paying it back
You should already be thinking about how you’re going to pay the investor or lender back as soon as you borrow. Of course, this doesn’t apply in situations when an investor is putting money into the business in order to claim a percentage of profits. Otherwise, lay out a budget and figure how much of your income you need to set aside to be able to reliably pay back your future debts. You should go as far as saying that you shouldn’t borrow any money until you are 100% certain that you can pay it back with your current financial situation and that you know exactly how you’re going to do it. This includes constructing a business plan, too. Most lenders want to know exactly how you plan on using their funds and paying them back.
The funder’s requirements
What exactly is your funder going to ask of you? This depends on where you acquire said funding from, for instance. When it comes to investors, the most likely demand is going to be a percentage of your profits for the foreseeable future. In comparison, many businesses might find banks or finance companies to have a much more manageable alternative. In those cases, you have to find out more about the lender in advance and ask all the questions about financing that you might have. What do they require to offer you their services? How much are they willing to lend? Should you establish some prior history with them in order to make sure your application is successful?
Where you stand
Regardless of what a lender offers, you can always make sure that you get a better deal by ensuring that you are more prepared in a few specific areas. One of the most important, in case you weren’t already aware, is your credit. Your credit score shows just how reliable you appear to lenders and having a better credit score can cause interest repayments to fall. Spend time checking your credit reports, removing any erroneous errors and see if there is any room for improvement. If you have no credit history, that’s just as bad as having a poor credit history and it may be worth taking out a credit card or some other form of short-term lending to improve it before applying to larger financers.
Your credit history isn’t the only history that lenders and investors care about, either. They both have a vested interest in making sure your company succeeds and is likely to make good use of the money that they offer. For that reason, having thorough, accurate records of your finances in the past few months is considered necessary by most of them. If you haven’t been keeping up with your bookkeeping or you haven’t reconciled your cash flow and your bank balance, then it’s not the time to borrow yet. Spend time setting all the records straight then you’re ready to apply.
Any wiggle room you can get
Whether you’re aiming for lower repayments, more time to repay, or the chance to get as much from an investor without giving quite so much of the business away, there is often a little wiggle room you can find to make a deal better for you. Learning to negotiate with creditors and investors is key as many of them may start by highballing you. It’s worth noting that borrowing from banks tends to be a lot less flexible due to the very established, concrete nature of them. But with most other lenders or investors, you can usually find room to negotiate by making a larger down payment upfront, using equipment as collateral, and so on.
Extra funding in the business can give you a lot of room to deal with growing costs and to find new ways to expand and invest in the business. But if you don’t have a plan, it’s all too easy to be rejected that funding you need or even to blow through it all without achieving your aims. Keep the tips above in mind and you’re much less likely to go through that.