What Type of Financing Will Work Best for Your Small Business?

No two businesses are built alike. Similarly, no two types of funding are built alike. Especially when considering small business financing, it is important to see the whole picture instead of comparing a limited number of options, because often whatever method and whatever amount is helpful in growing a small business. Also, frequently a combination of funds is used instead of only opting for one method.

So what type of financing should you use? To determine that, there are three questions that you should ask yourself. The more the lenders like your answers, the more likely that you will get approval for financing.


  1. Can You Repay the Loan?


To be more precise, how likely is it that you will get revenue from this loan? Are there any other outstanding debts? Do you have another source of income, besides this business? These are all questions that you should consider before taking any type of loan, as the main concern that lenders have in mind is whether they can recoup their investments or not.


  1. Do You Have Experience?


Regardless of the size of your business or the time you spent on it, if you have experience working as an employee or running other companies in a related industry, small business financing will be more readily available for you.


  1. Do You Have a Back-Up Plan?


Things may not go perfectly. What will you do if the worst happens? What are options for the creditors?


If you just started your business, you may not have collateral or experience and the above answers may be tricky to answer. In that case, your options for securing financing through traditional options such as bank loans or credit lines are limited. Therefore, you might have to dip into personal sources of funds, such as your personal savings, personal credit card or a 401(k) account. Also, crowdfunding opportunities may be available if the message of your business is meaningful and can draw attention.


If your business is fairly established, you have more options in the traditional financing sector. Steady sales and a good business credit score will help you get good interest rates and terms for a merchant cash advance, credit line or equipment loan. The longer your credit history and the stronger your company’s performance, the better terms you will get from a financial institution.


Set aside some time to think about your answers to the three questions above. Not only are they a good gauge of whether you will get approval for small business financing or not, but also they are great thoughts to keep in mind as you run your company.