Three Times You May Need Funding and How to Get It

If you are like many entrepreneurs, you started your business with your own cash and “bootstrapped” your business. You may have thought about funding for your company from day one, but found that the barriers to obtaining funding are great, especially for companies that are just starting out, so you had no choice but to fund it yourself.

Some companies can grow quite a bit before the owner needs to reach out for external funding, but bootstrapping your business forever, or burning through your retirement savings are not realistic options for a profitable business. Most owners look for funding in response to a significant milestone or event in the business.
Seeking outside capital is meant to address a temporary situation, not as a way of hiding basic flaws. There are times when funding your business becomes more strategic than others. Here are three such times, and some ways you may be able to locate the funding you need.

1. You Need to Pay Bills Before You Can Generate Revenue

Lots of businesses – like those in construction, retail, and technology – have to purchase products and equipment or invest in services before any revenue can be generated. When there is a commitment (or even high likelihood) of revenue on the other side, taking on additional financial risk to fuel growth makes sense.

A few options for early funding include in cases such as this include:

• Traditional bank loans: These can be faster to obtain but a strong personal credit score is usually required
• SBA loans: These are a better option for owners with less than a year’s worth of history and revenue, but it could take much longer to get approved and there is still an approval process.
• Friends and family: This is probably the best alternative for early funding, but it is not risk-free.

2. You Need to Make a Big Purchase

Whether you need to invest in equipment, inventory, or tools needed to digitize or expand, prioritize on the big-ticket items that will help achieve those goals. Make sure you also understand what the revenue impact of a large purchase will be.

For many owners, credit cards are a good option for these purchases. But do your homework on the available cards. You want to be able to pay off a big purchase (and improve your credit score) without accruing costly interest.

3. You’re Ready to Hire

A majority of business owners seek funding for the first time when they need to hire new employees. In this case, a conventional bank loan, business line of credit, or SBA loan are the best options for most small business owners, but make sure you have a handle on your financial health and budget, including strong personal and business credit scores and up-to-date financial statements, including a balance sheet, income statement and bank statements.

There are a few other ways to obtain funding to grow your business, and we would be delighted to discuss those with you. One way we can help to ensure you have the funds needed to grow is by optimizing your cash flow. Here is a recent blog we posted on that topic. Take a look at it then give us a call!