Most business owners realize the importance of “fit” when hiring new employees or selecting business partners, but overlook the important role it can play when it comes to exploring outside financing.
The right financing fit will not only expedite the process of financing approval, but it can also deliver the best option relative to credit availability, terms and conditions, and overall cost. The life stage and financials of your business and flexibility of terms are key drivers of fit between your organizational needs and financial alternatives.
When exploring your options, it’s important to consider that start-up companies are most likely to have success with non-bank options like micro loans or government programs. Not surprisingly, most start-up and related companies rely heavily on self-funding and personal loans.
Meanwhile, companies that are undercapitalized, but experiencing growth are in the sweet spot for Small Business Administration (SBA) loans/government programs. Free resources like Service Corps of Retired Executives (SCORE) advisors or Small Business Development Centers (SBDC) can be very helpful for identifying high-potential loans and providing a list of quality institutions that successfully process these types of loans. For example:
- There are initiatives for small businesses exporting to specific markets, veteran business owners, and commercial real estate buyers. Talk to the experts at your local SBDC or your banker about specialty SBA loans.
- Many undercapitalized growth companies supplement SBA loans with shorter term financing options, such as receivables factoring — selling your invoices to a third party — or credit cards. While higher in overall costs, these options can work for short-term needs.
- Financially strong companies can look to retained earnings and supplier credit, in addition to more traditional bank loans.
Lastly, it’s important to remember that “fit” is driven by a strong relationship with a local banker, who can provide long-term advice and adjustments to adapt to your changing business over time.