Industry tips from field experts to analyze financing options for your small business.

Making sure your business can access the capital it needs is one thing; finding the right financing for your business is quite another. Analyzing financing options for your small business can become a headache for any business owner—which makes sense when you realize that only half of the small businesses that applied for traditional sources funding in the first half of 2014 actually received any money.

But traditional banks aren’t your only option. As you begin analyzing your choices, you should ask yourself two key questions: “What do I qualify for?” and “What are my priorities?”

• What do I qualify for? If your business, or your own personal credit history, wouldn’t stand up to the scrutiny of a traditional bank, you can explore alternative financing arrangements like credit cards, small business loans, and capital advances. Each of these options does require a credit check, but often, the requirements are less stringent than with traditional resources. Combine that with no required collateral or business plan, and you may find alternative lenders become your go-to resource for quick, short term funding solutions.
• What are my priorities? Perhaps you need a smaller amount of capital quickly, that is, within a few days, so you can take advantage of a purchasing deal from a vendor or cover your payroll obligations. Or perhaps you need a larger amount for an expansion or renovation, and it’s more important to repay those funds with a fixed monthly payment. Your priorities may change over time, too; so it’s important to continuously evaluate your business and its direction.

Answering these questions—before opening any line of credit or accepting alternative funding—is essential to putting that money to work for your business. Taking in capital with no repayment strategy and no understanding of how it will affect your cash flow is a recipe for disaster.

The Flip Side: Evaluation Factors

With those key questions answered, you’re on to the next piece of the puzzle: understanding what lenders look for, so you can access the capital you need.

In June, Entrepreneur Magazine reviewed the characteristics lenders, both traditional and alternative, consider when evaluating entrepreneurs and their creditworthiness:

• Age of the business: The older your business, the more financing options you will have at your disposal. But younger businesses need financing too; check out our blog about how the small business life cycle affects your need for, and access to, capital.
• Revenue: Is your business performing well? How are your sales? A $4,000 per month threshold opens up more alternative financing options, and the larger your monthly sales, the better your chances of securing your desired financing vehicle. In addition, you’ll want to make sure you can prove out your business’s performance to creditors.
• Your personal FICO score: Do you have any credit skeletons in your closet that will prevent you from accessing different financing options? Take the time to make sure that you are personally performing well (at least a 640 FICO score) before pursuing any sort of small business funding.
• Size of the proposed loan: Don’t request a loan or funding option that is too large in comparison to your business’s performance. You have to protect your cash flow.
• How you plan to use the cash: This piece really echoes those first two questions. You need a solid strategy for how you intend to use your new capital, or you may find yourself in trouble.

Check in with your network, too. Your fellow entrepreneurs can share their financing experiences and give you more insights into what worked for them, which providers they’ve worked with, and how to make the whole process simpler.

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