While the market has been improving for small businesses seeking additional capital, a 2016 report on The State of Small Business in America indicates that obtaining capital remains a top challenge for small businesses. A few key findings:
The recent years of uneven economic recovery has caused many small businesses to face low cash reserves and collateral values. While the need for capital may be higher, the post-recession lending restrictions imposed on traditional banks has led to fewer requests being funded.
As with all hiccups in life, being prepared is key. According to a U.S. Bank study, 82% of businesses fail because of poor cash management. That telling statistic suggests that small businesses could benefit from access to additional funds at one time or another. Evaluating opportunities for access to additional funding when business is booming is a great first step to being prepared for changing business dynamics or emergencies. Applying for a revolving line of credit or requesting a credit limit increase on the primary business credit card are good options.
If you are hoping to secure additional capital for your business, keep your credit cards in check. It is never a good idea to max out your business or personal credit cards since this leads to higher interest payments and lower credit scores. In addition, you should think twice about securing additional business or personal credit cards to fund your business. Many small business owners secure another credit card in lieu of getting a small business loan. This can put additional strain on the financial health of the business and lower your ability to obtain reasonable funding solutions in the future.
Prospective funders will evaluate how responsible you are with your money. The best way to prove to them that you are worthy of a low-rate funding, is to keep your books in good order. If you can demonstrate that your small business has been responsible with its funds, it will be easier to obtain more funds. While accounting can be a daunting task for many small businesses, maintaining accurate accounting records is the best way to monitor the financial health of your business, and will provide prospective funders the best proof of how responsible you will be with any money provided to your business.
When applying for loans or other sources of capital, your prospective funder may ask you for a variety of information to help them make the best decisions possible on which product to offer you and how much they think you can afford. Even when this information is challenging to put together, it is in your best interest to make it a priority.
Before you apply…
When you apply…
After you apply…
Responsible small businesses have more access to capital than ever before with the evolution of alternative lenders and expanded Internet research capabilities. Selecting options that will help your business grow rather than owe should be the goal when securing additional capital.
View our Financial Educational Series for a complete list of blogs dedicated to helping small businesses understand the nuances of keeping their business financially sound.
About Breakout Capital
Breakout Capital is committed to responsible funding. We believe it is better for you to keep your business and grow it responsibly than set it up to fail with insurmountable debt. Please contact us today if you’d like to partner with us.