For continued success, your business needs to grow, and you should strive for both short-term and long-term business growth. Rarely does a business stay at the same year-over-year baseline. With most businesses, if you’re not growing, you’re losing ground.
While some small businesses grow organically by word-of-mouth, many require investing to get new customers and to gain market share. As a business owner, there are times when growth opportunities present themselves, but you may not have the necessary cash flow to make the required investment. As a solution, many business owners turn to financing to take advantage of opportunities as they arise.
When considering a business loan for growth, it is important to have a plan. Borrowed capital should either add value to the business or increase your ROI. It’s seldom good for business when owners borrow to get out of debt or borrow for the sake of borrowing. Be aware of the costs of borrowing and determine if your business will benefit from the funds. Here are a few things to consider when determining if borrowing is right for your business.
Borrow with Purpose
Because it’s tempting to think that a bit more capital will solve all your business trouble, some business owners fall into a trap by borrowing to alleviate financial crisis. When they do, the additional debt often makes their capital problems worse.
When you are considering financing for your business, make sure that you are borrowing for the right reason—growth. Your debt must help your business grow, not weigh it down.
Prepare Your Business for Financing
For good reason, most lenders only lend to established businesses. Whether your business is in the early stage, or you’ve been in business for a while, it’s prudent to ensure that your business is loan-ready.
Lenders must be able to accurately judge your business’ creditworthiness. Without a lot of revenue, a track record, or established business credit profile, this is difficult for them to do. During your first years in business, you should be strategic in building your business credit; then be vigilant in maintaining your creditworthiness as your business matures.
Here are tips to prepare you for a business loan.
Establish credit with vendors and suppliers:
Although vendor-supplied credit is not an official loan, it helps establish the creditworthiness of your business. Find out if your suppliers report your credit history to the appropriate business credit bureaus. All major business credit bureaus consider vendor relationships and payment history when evaluating your business credit profile.
Don’t use your personal credit for business purposes:
You should not use a personal credit card for business purposes. Demonstrate that your business can manage debt by using a business credit card and making timely payments. Good payment history on a personal card or personal loan will not count toward your business credit profile.
Start with small loans:
A manageable short-term loan might not be the small business loan you need for large growth projects, but your good credit behavior on smaller loans will show future lenders that you can responsibly manage debt when the time comes for taking a larger, longer-term loan.
Is Financing Business Growth Really a Good Idea for My Business?
Although financing isn’t the answer to every small business problem, it’s very possible that financing your business growth is the right decision for your business. Be honest with yourself and clear about how you’ll use the funds and your ability to pay it back. Borrowed capital could be the right growth tool for your business and Allied Financial is here to advise you. Our goal is to help small businesses make money with our money. Give us a call.