The Do's and Don'ts of Financing a Small Business

Published August 2nd, 2022 by River Point Capital

Financing a small business can mean the difference between life and death for many organizations at specific points in time. Recent statistics suggest that of businesses that fail, 82% do so because they are having challenges with cash flow.

Meanwhile, other statistics suggest that 40% of small businesses are profitable. Of the remaining 60%, half break even and half lose money continuously.

There are many financing options, but what is right for your company? What do you do, and what should you avoid to win over a financial institution?

Relax and keep reading as this article unravels the mystery. Here are the main points you need to consider when financing your business starting now.

Do Time it Right

If you are looking to expand or are a startup business, part of being successful means preparing. You must plan when it is you need money and how you will allocate those funds.

Borrowing too early can cause major dilemmas later on. It will be tempting to spend the money on things that were not a part of your plan, and rather things that you desire now. If you borrow too late, you may put a new business at risk of being financially unstable.

Don’t Pay it Back Too Quickly

If you repay the loan too fast and end up short on funds for operating the business, you are putting yourself at unnecessary risk.

Instead, you could consider how much interest you could save by paying it all back early and compare this number to what you expect your return on investment would be if you do not pay it back right away. Think of ways you could take that money, what you would use to pay it off early and invest it to make your business more money.

Do Borrow the Amount You Need

Avoid coming to the table with a ballpark figure. Do not guess; you must know exactly what you need.

That is why you need a plan before approaching a financial institution.

Because you have a plan, including projected costs and revenue, you should have a specific number in mind. If you borrow more than you need, you are only leaving yourself in a position where you owe more money unnecessarily. This will do more harm than good.

Also, do not undercut yourself. If unexpected expenses present themselves, you will find your business is short.

Don’t Forget Your Elevator Pitch

A small business owner needs an elevator pitch the same way a job applicant uses it to get a new job. Before you speak with a lender, practice what you will pitch.

This means knowing your company’s missions, its purpose, and your proven track record. A part of this is the financial forecast that you already have on hand from your planning stages. All these details you should be ready to recite for the representative at the financial institution.

The lender needs comfort that they are extending money to a viable business. Prove to them you have it.

Do Shop Around

If you are banking with a certain institution, it does not mean you have to stick with the bank for all things related to your business. It is just like anything else in life. Every business offers its own variation of what you are looking for.

Also, all financial institutions will want your business. That’s okay, shop around!

Plus, if you diversify the financial institutions you work with, this will only be a benefit for you. Especially if you run into a snag in the future.

You need options. You don’t need one lender holding you captive.

Don’t Let Concern Over Finances Take Control of You

It can be overwhelming when you are looking to grow your business, but funds are running short. A part of any successful business comes potential risk. You are taking a calculated risk, and you need to be confident in your approach.

Do not stress. Rather, focus your time and energy on preparing. You need a good business plan that includes a budget and financial forecast.

Devote your attention to building your sales pipeline and creating an innovative marketing plan. You can get the funding you need for financing a small business if you are asking for the right amount of money. You have a solid plan, and you believe in your goals.

Do Keep Records

Be diligent. Maintain and keep all receipts, purchase orders, statements, invoices, bills of lading, and other financial records you have. Many financial institutions are keen on working with a client who keeps proper documentation.

Do not overcomplicate it either; it should not be a time suck. Leverage good document management software that can help you keep it all straight efficiently.

Don’t Forget About Taxes

Small businesses have a lot of things to consider with their finances. Unfortunately, taxes can take a backseat and you could forget all about it until it is time to pay. Forgetfulness will have a negative impact on you.

Taxes will vary on several factors, including the location you operate in, such as country or state. Also, the type of business you have will make a difference. Get to know your tax laws and estimate how much you will need to set aside for tax time.

Financing a Small Business

Follow these dos and don’ts and let your troubles slowly melt away. Once you gather all your details, River Point Capital will help you handle the rest.

We know that financing a small business is a big decision. It is a lifeline that leads you to success. That is why we offer the best financing options for small businesses to help you overcome a hurdle in time.

You need financing options to help you thrive as you become a medium to even a large-sized business!

As this article says, do not stress; rather, plan and take action. Then, contact River Point Capital to get you to the finish line!

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