Financing is a major part of developing a business. Whether you are trying to expand or just starting out, running a business takes capital. Sometimes you are able to self-fund, but it is far more common to seek financing externally. While it is possible to do amazing things with just a little bit of funding, it is also easy to completely mismanage your acquired finances, leading to a worse situation than when you started. It is important that you have the knowledge to develop a plan of action and the commitment to make the plan work no matter what. Use this short guide as a starting point for learning how to make the most of financing. Remember that consulting with a law attorney is a good idea. Once you understand the basics, a lawyer can answer some of your deeper questions.
Questions to Ask Yourself
Before you seek financing, you need to have an intimate understanding of your business. Ask yourself some basic financial questions. These will help you understand not only whether financing is right for you but also what kind of financing you should seek, what the best way to utilize it is, and how you can get approved. Consider:
- What are you going to do with the capital you receive? To be approved, you need to have very specific plans.
- Is it at all possible to achieve your goal through more effective management of the money you already have? You should not seek financing unless it is absolutely necessary.
- What are your risks? What is at stake determines how quickly and what kind of financing you can receive.
- What state is your business in right now? This is a simple question to answer if you are seeking capital to start a company, but be warned that lenders are more interested in lending to existing companies. If you are already in operation, is business increasing or decreasing? How is the larger state of the industry you are working in?
- What is the term of the finances you seek? How long are you anticipating it taking to pay back? Short term loans are much easier to qualify for than longer ones. If your business is seasonal, lenders may be more willing to provide finances, knowing that business will increase again later. This is especially true if you have good records of previous cycles.
Assess Your Business
Take a serious and unbiased look at your business. Think hard about whether it is the kind of organization lenders would be interested in investing in. If not, how can you make it more appealing? Do you need finances because business is failing or because you cannot properly take advantage of how good business is in your current state? If you have not yet written a business plan, it should be your priority to figure one out. This will be the first thing lenders will want to see. Consider how your request for finances compliments your business plan. In addition to seeing a successful company, lenders want to know you are committed to the business, passionate about your work, and dedicated to your plan. You should also take a close look at your management team, as they will play a large role in how the finances are utilized.
Types of Financing
Finally, you should also know exactly what kind of financing you need. After doing research and assessing your business, you should begin to see what financing plan matches the unique needs of your company. You will likely either want to pursue equity or debt financing. If you have more equity than debt, it is wise to finance your remaining debt. On the other hand, if you have more debt than equity, increasing your equity will strengthen and improve your business. It is your responsibility to figure out what financing is right for your company.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.