Why, how and where to get a small business loan are easy questions to answer. Figuring out when to get a loan is a more complex issue. The answer to that question depends on what you want to do with the funds, the type of loan you are interested in applying for, along with both your current and past business and personal financial history.
The national and global economic cycle matters too. Overall, small business owners are optimistic about the economy. But it’s important to prepare for unexpected issues, like health crises and political upheavals, that rapidly impact all businesses. Best bet is to have enough working capital available to leverage opportunities and survive the challenges.
Funding to start a business
You’ve got a great idea for a business; you’ve done your research and you know there’s a need for your services or goods (and the market isn’t oversaturated with other businesses filling that need). You’ve created a business plan, and you’re ready to go – but you need funding.
If you have an excellent credit history, you can apply for a loan through your bank or credit union or an SBA loan. If you haven’t opened your business yet or have been in business less than 6 months and your personal credit history isn’t excellent, you will have an easier time getting funding from alternative sources, which tend to be more focused on the future profit potentials of your business as opposed to your past credit history. Once approved – you often can access the funding faster – in days rather than the month or more that it takes to access funds from a traditional bank loan.
To take advantage of a new business opportunity
The right time to financially prepare for a sudden opportunity is now. Think about establishing a business credit line that you can draw from when needed. But, if like many small business owners, you don’t qualify for a credit line that would enable you to do much of anything, you still have options. Look into alternative funding sources, which typically have a streamlined qualification process – you can have the money in your account within 72 business hours. And once you’ve found a funding partner that you like working with, it’s a good idea to establish a business relationship with them. That makes it easier for you to return for additional funding when the next opportunities present themselves.
To increase working capital
Small business owners don’t always pay enough attention to working capital. But low working capital is like living paycheck to paycheck. It’s stressful, it limits your options and it can eventually result in a financial disaster that puts you out of business. Working capital is a safety cushion that helps to ensure you can keep your business up and running even if you hit a slow period or have a small disaster that requires time to recover from.
But the most critical advantage of working capital is that it supports you during a period of growth. Did you know that success can ruin a business? It’s true – if your business starts growing you need to be able to meet demand. Filling new orders or taking care of new clients may cause your accounts receivable to increase as quickly – or even faster – than your revenues increase. Eventually the receivables should grow faster than payables but right now you have a gap that needs to be filled with additional working capital. For many small business owners, the quickest way to access working capital is through alternative funders.
To purchase equipment/inventory
The best reason to take on business debt is when you know it’s an investment that will make enough money to offset the fees attached to the funding offer. The cash flow that you can realistically expect from additional inventory or equipment should be more than what you will pay back for the funding.
The best time to apply for funding that will enable your company to grow is as soon as your business can support growth and you know your expansion plans are reasonable. Make sure you know exactly what you intend to do with the money, and – best case scenario - whether the new revenue will be sustainable over the long run.
To survive a slow business cycle
Many businesses are seasonal, and you can predict when your business is likely to be slow either from your own experience or the knowledge of others in your industry or local community. But sometimes you don’t have enough assets to get through a slow period, or you may experience an unexpected slowdown due to external events like a natural disaster or other situations – like street construction that makes it hard for customers to access your storefront - that temporarily impact your business. You know that business will likely improve in the near future, but you need to pay your bills until it does.
One funding solution that makes sense for slow business cycles are merchant cash advances. These are not loans; they are an actual advance on your business’s future income. Approval for this type of funding is based on your average recent revenues, so don’t wait until the very last mind to apply.
Soon after you’re approved and accept an offer, a funding company deposits a lump sum amount in your business account. This sum is an advance on your future revenues. It’s repaid through automatic deductions of a set percentage of your receipts, with are withdrawn from your business account. And since you are repaying a set percentage of the day’s actual receipts, what you owe aligns perfectly with your business cash flow. You’ll pay less during slow periods, and you’ll catch up by paying more during high-volume times. Traditional loans with fixed payment rates may be difficult to pay during slower business cycles.
How do I find an alternative business funding source?
Amerishop Financial works to help owners of small and mid-sized businesses access the funding that meets their needs. Established in 2015 and founded by entrepreneurs, Amerishop Financial understands the challenges associated with small business loans and their need for working capital.
Visit www.amerishopsas.com or call 877.407.9195 and connect with a funding expert to discover the options that make sense for you and your business.