There are basic steps a small business owner can take to prepare your small business for financing
There are many things to consider as a business owner when looking for financing for your business. There are 44 different types of financing offered to small business owners from thousands of lenders. The average small business owner spends an average 26 to 33 hours searching for financing according to the Federal Reserve. One in five are so discouraged that they don’t even bother to apply for financing.
How to prepare your small business for financing
We often receive questions from small business owners looking to apply for financing for their business. One of the more common questions we receive is how to prepare for the application process.
The first step that business owners must take in order to get funding in the name of the business is to separate their business and personal bank accounts. While this may seem basic, almost one in five business owners are using personal accounts for their business.
The business should also operate under its own business structure such as an LLC, S or C Corp. It is often very difficult for a business to secure financing as a sole proprietorship. It also recommended that you consult your accountant or lawyer to determine the best business structure for your situation. There are tax implications for each business structure and you, the small business owner need to make an informed choice.
Each financing vehicle for your small business is going to require paperwork. The exact documentation required is going to depend upon the type of financing you are seeking. Paperwork prospective lenders may ask for include copies of tax returns, pro-forma projects, business plans and any assortment of additional paperwork. Some lenders may also want to evaluate your cash flow while others will request access to your books.
The paperwork you will need to apply for a business financing
Some lenders require will require more paperwork than others and require more processing time than others. financing from traditional lenders such as banks for a term financing can require a tremendous amount of paperwork to complete the financing application process. Many banks may require a small business owner and their advisors (accountant and lawyer) to spend many days and in some cases weeks to complete their financing application. Once submitted, the bank may take the financing before a financing committee to review the merits of the financing documents and make a decision. It is not uncommon for several months to pass between when a bank financing application is submitted to when the financing is funded.
For small business owners, time is everything
It has been our experience working with small business owners that they are often very pressed for time. They are involved in everything from marketing to managing the business, often involved in every minor and major decision. When they need money for their business, they often need it now, not three to six months down the road.
For this reason, alternative or working capital financing are increasing in popularity with small business owners. The application process can often be completed online in the course of a few hours and decisions are made online in as little as 24 hours. Once a decision has been made, the financing can be funded in the bank account of the small business in as little as 24 to 48 hours.
These are just two examples of popular financing vehicles for small businesses. Each type of financing will have its advantages and disadvantages. This document is intended to be a starting point for your small business financing research.
If you have decided on a working capital financing, we can help you. Our specialty is helping small business owners get the financing they need to grow their business.
Ready to start addressing your small business financing needs, apply for a working capital financing from Zip Capital Group.