Determining Your Financing Needs
Before you seek financial assistance, you should thoroughly assess your current financial situation. Ask yourself the following questions to determine your business’ financing needs:
Do you need more capital or can you manage the existing cash flow?
If you are having trouble paying your obligations on time, you may need an infusion of working capital.
What is the nature of your need?
Do you need money to start or expand your business or as a cushion against risk?
How urgent is your need?
Whenever possible, it’s better to anticipate your needs rather than looking for money under pressure. It is harder to gain approval for a loan when your company is already in trouble, so plan ahead and secure financing well in advance of a crisis.
How great are your risks?
All businesses carry risk, and the degree of risk will affect both the cost of your loan and available financing alternatives.
In what state of development is your business?
Needs are generally more critical during transitional stages – start-up and expansion being two of the most urgent and costly.
For what purposes will the capital be used?
The lender will need to know your specific intentions for the money, to assure themselves that your business will thrive and that repayment is assured.
What is the state of your industry?
Whether your industry is depressed, stable, or quickly-growing will have a distinct effect on your search for funding sources. Businesses that prosper in tough economic times will generally receive better funding terms.
Is your business seasonal or cyclical?
Seasonal needs for funding are generally short term, and consist of smaller loans with a quicker maturation. Loans advanced for cyclical industries, such as construction, are designed to support a business through depressed periods – these industries are sometimes known as ‘feast and famine’ businesses as the cash flow is often erratic and unpredictable.
How strong is your management team?
Effective management is an important element of business. Your lender will be looking for a strong managerial presence.
How does your need for financing mesh with your business plan?
If you don’t yet have a business plan, make it a priority to write one. All lenders will want to see a solid, well thought out business plan for the start-up and growth of your businesses. You can get help writing a business plan here.