For most entrepreneurs securing financing for their business is at the top of their list of concerns. Here are 3 steps to getting financing for your small business:
The first step you need to take in order to get financing for your business is to begin separating your business finances from your personal finances. Statistics show that roughly 25% of business owners co-mingle their personal and business accounts. This is a dangerous mistake.
You will also need to create a separate entity for your business, such as an S Corp or an LLC. In general most lenders won’t give financing to a sole proprietor. Be sure to consult with an accountant to help you understand the tax implications of each business structure so you can make a more informed decision.
The next step towards getting financing is to get your paperwork in order. Pull up to date reports from QuickBooks so you can show the potential lender accurate financial data. You will also need to gather copies of your recent tax returns and information about how you plan to use the money.
The next step to getting financing for your small business is to take the time necessary to research your options. Most small business owners spend roughly 30 hours searching for financing, with many getting so discouraged that they don’t end up applying for the loan. Work closely with your accountant to make sure you use your time wisely and only apply for the loans that will be most appropriate for your business needs.
There are some very important considerations when evaluating commercial loans. A big one is that unlike personal loans, business lenders aren’t required to disclose the annual percentage rate for their loans. This means that the quote you are given might have hidden costs or other misleading descriptions. If you aren’t extremely careful you could get trapped in a loan that isn’t sustainable and could end up running your business into the ground.
In this third step towards getting financing for your small business it is wise to work closely with your trusted accounting professional. They will be able to help you understand the true cost of each loan and the difference between the loan options you have available. They will also be able to tell you whether the loan will be sustainable for your business over the long term and what potential problems could arise, e.g. prepayment penalties. The bottom line is you need to take your time and evaluate your options carefully before choosing a lender for your business.