Think HBR

Tips for obtaining business financing

Most businesses require financing at some times.
The following are a few tips to consider when looking at obtaining business financing.
1. Why do you need finance?
Is it for a short term cash flow shortfall, new equipment, expansion or some other need? This will influence the type of finance required and the options available. The prospective lender will likely also like to know the reason.
2. Accurately determine the amount of financing required
For some need, such as equipment finance, this may be relatively easy, however, for others it may be more difficult. Try to accurately determine the amount of finance required. You may consider some safety factor, but remember that additional finance will result in additional costs. On the other hand, not obtaining sufficient finance can result in major problems or require you to then seek additional finding, resulting in additional costs and time.
3. Have a business plan and cash flow estimates
The lender will want to have confidence in your business. A good business plan and cash flow estimates show that you have considered the future and how you intend to be able to pay for the finance. These are a requirement for many funding applications.
4. Have manageable debt levels
The lender will likely want to know that with the addition of the new borrowings, your business still has manageable debt levels and ability to service these debts.
5. Demonstrate business ability
A finance provider will feel much more comfortable if they consider the business is managed well. Previous performance is a good indicator, but it is also wise to demonstrate that key managers and staff have good experience and the skills required to make the business a continuing success.
6. Consider a range of options
There are more sources of finance and finance products available than ever before. It is wise to shop around for the best fit in terms of product and costs. Also consider terms and conditions and flexibility of any arrangement. Some forms of financing may require security and these will generally offer significantly better terms, however, you may prefer to sleep better knowing that say the family home is not at any risk.