Finding money to finance a business is one of the biggest hurdles any business owner faces. In this series of articles, we’ll focus on how to prepare for financing, the different types of financing available for businesses, the paperwork you’ll need for loan applications and preparing financial forecasts for your business. This first article discusses how to prepare for finding financing for your business.
Getting Ready To Find Financing
Securing financing for your business takes a little preparation. As with most projects, securing financing often takes longer than you first anticipated. Plan accordingly and begin your funding efforts as soon possible. Put your financial house in order before you need the funds, as a mad scramble for funding to save your business is not the kind of scenario anyone wants to face.
Checking Your Credit History
You dramatically increase the odds of obtaining financing when you have a good credit rating. If you have poor credit, you’re viewed as a risk to lenders. Before you apply for financing, it's a good idea to review your personal credit score. A credit score, generated by evaluating an individual’s credit file, can range from a low of 365 to a high of 850. A score of 680 or higher is viewed as good. If your score is less than 680, you should work diligently to improve your score. Until then, receiving a loan with good terms is unlikely.
Before you apply for a loan, get a copy of your credit report. Thanks to Congress, all U.S. adults are now entitled to receive one free copy of their credit report from each of the nation’s three credit reporting bureaus every year. Take advantage of your free report and check your credit before you begin seeking financing. To obtain your free report, visit www.annualcreditreport.com.
You can also contact the three credit reporting agencies (TransUnion, Experian, and Equifax) and request copies of your credit files, although you’ll be charged a fee. When you receive your credit reports, go through each one and identify any irregularities. Contact each agency and request that these irregularities be corrected. All three provide an online method for requesting a review of any information found in your credit file. Take advantage of this free and easy method to keep tabs on your credit file and correct any issues that might impact your score.
Practicing Your Pitch
Practice explaining your business model to people who can provide an unbiased critique of your presentation. Listen to their feedback. If they don’t get it, chances are neither will your loan officer (or your customers). It’s a good idea to use a video camera to record yourself describing the business idea. You can then improve your presentation before your meetings. You’ll be surprised at how quickly your presentation will improve with practice, along with the business idea itself. Also, your personal experience and character are key factors in securing financing for your business. When meeting with lenders or investors, make every effort to present yourself in a professional, courteous manner. Take the time to carefully prepare your paperwork and applications—spelling and neatness count.
Building a Support Team
Most funding decisions for your company should be made in conjunction with professional advisors. Good advisors will help you make the best decisions for your company. At the least, you’ll need two advisors:
- A good accountant is indispensable not only for developing a plan for funding your business but also for maintaining accurate accounting records and preparing proper tax filings.
- A business attorney is essential for establishing the correct form for your business. Make sure the attorney you select is well-versed in small business matters. Your brother-in-law might be a great criminal defense attorney, but he may not be the right attorney for your business.
Start building a network of contacts, peers and resources that you can turn to when you need answers—and vice versa. Networking is a two way street.
Funding a business is no easy task. If you're like most entrepreneurs and business owners, quite a bit of your time is spent worrying about how to finance your business. When I was finding financing for my business plan writing software company, Enloop, securing funding took twice as long as I’d planned.
The next article in this series will discuss the common types of business financing available for businesses and the paperwork you’ll need for loan applications.