From its name to its logo, you try to make each aspect of your business authentically your own. Yet, despite your general creative efforts, after looking at your books you may realize your financing is holding you back.
So you end up passing up on that website redesign, store remodeling idea, or extra marketing initiative, assuming that it’s just not realistic.
But, isn’t the whole purpose of funding to give your business the room it needs to fully develop?
Here are 3 tips that can help you find the right financing to drive the budget for each of your creative ideas:
1. Know your options
Today’s financing opportunities range from traditional bank loans with repayment lasting a couple of years to alternative financing terms as short as 30 days. Here’s an overview of a few of the most popular financing options so you can determine what’s right for each of your initiatives:
- Traditional financing - According to the SBA, as of 2013 the median loan banks give is $130,000-$140,000 and the average SBA loan is $371,000. Most of these loans are secured, so your assets will be collected if you default.
- Alternative financing - You can qualify for smaller loans (usually under $50,000) with shorter repayment cycles in a matter of minutes. Some finance companies will increase your line of credit and your terms as your revenue grows.
- Credit cards - Small businesses can easily qualify for credit card loans, but repayment fees are often hefty. Defaulting will lower your credit score and could put your business at risk.
- Angel investors - This term refers to family or friends and generally comprises a seed loan. For continued financing, loans will need to be sought out anew each time.
2. Consult your timeline
Consider your own sales cycle and projections before agreeing to repayment terms. Keep an eye toward scheduling terms according to peaks of profitability.
- Length of your project - If you’re using financing to fund a new project be aware that it usually takes a few months for one to really be profitable. Make sure your repayment terms fall out in the middle of a new initiative, rather than at its beginning, so that you don’t risk defaulting on loans.
- Seasonality - Many businesses generate the largest percentage of their profits in a span of 2-3 months. Scheduling terms at high revenue points ensures that more of your money goes back into your business, rather than to paying your lender.
3. Weigh the value of flexibility
Do you want to be able to adapt your business to the changes of the market? Are you searching for the lowest interest rates? You have to engage in your own cost-benefit analysis to determine your business’s hierarchy of needs.
- New projects - Aside from keeping up with what’s trending, flexibility is useful when financing new products because you do not yet have the metrics to project the return you’ll get. To keep yourself from getting harbored in large debt, choose smaller loans with shorter terms.
- Established projects - If you’re refinancing a successful project, flexibility is probably less important to you. Instead, determine when your highest revenue projections are and seek out the most affordable financing offered in that period.
Remember, it’s about you
Fit your financing into your business model and not the other way around. Just because one method of funding works for you now doesn’t necessarily mean it’ll be the right decision further down the line. Similarly, choosing different financing methods for different projects helps you invest in your own creativity.