March 4, 2019 | By Peyton Sawyer
Being a small business owner is no easy task. There can certainly be rewarding parts at times, but it isn't without its challenges. Unexpected issues can arise from time to time, and depending on the severity of the situation, the extra expense could have the potential to jeopardize the future of your business.
Besides the regular operational costs, you have to prepare for, you must also consider the unexpected costs that can affect your bottom line. Starting, growing, and sustaining a small business can be difficult, especially with the financial pressure we are faced with today. People aren’t spending as much because they simply don’t have the money. So, what does that mean for an independent business owner like you?
Many business owners and entrepreneurs are dealing with business funding hurdles that ultimately results in a denial. As a business owner, how can you prepare your business to overcome these financial challenges? Let’s take a look at what to consider before seeking business funding.
Knowing and understanding your funding options should be the first step in the funding process.
Traditional Business Funding
Traditional business funding from a bank or credit union follows a stringent approval process, making it difficult for small business owners like you to access funding. You may wonder why this happens, and what choices you are left with if your funding request was rejected.
Funding Reforms
Applying for traditional business funding with a major bank or credit union is usually the first step for every business owner. Along with being the most common approach, it can also offer the best rates.
The financial crisis that occurred some years ago is one reason business owners are having such difficulty getting approved for business funding. The crisis prompted a series of funding reforms that introduced tightened regulations and limited credit availability to small businesses around the world.
Small businesses present a greater funding risk than larger corporations, making banking institutions nervous to approve funding. Underwriting small business funding costs the same as underwriting big business funding, causing banking institutions to shift their focus on funding. Many have decided that small businesses are not worth the increased risk.
Business Credit Cards
Using a business credit card as a form of working capital is one way that small businesses survive. Accessing funding through available credit on a credit card to make purchases or even cash withdraws can help to sustain the business.
But any credit card, whether it is used for personal use or toward business expenses, will carry a high rate. Making sure to stay on top of your payments, or paying off the charges monthly will help to keep it under control.
Approval for a business credit card, like a personal credit card, will depend on the applicant's credit score. If your credit history is lacking or has any discrepancies on it, then your request for credit could be denied.
Using Working Capital
The definition of working capital is the measure of a business's short-term financial health and its operational efficiency. The ratio for working capital consists of a business’ current assets and current liabilities. This ratio will indicate if a business has enough short-term assets to cover its short-term liability.
Having a healthy working capital means that your business assets exceed your business liabilities. If they do not, your small business could be at risk of defaulting on creditor payments.
You can use your working capital to help sustain the future of your business when business funding from a traditional funder is not an option. If you do not have enough working capital to do so, and another funding option is necessary, then an alternative business funding option may be able to provide financial relief.
Alternative Funding Options
If you are looking for an alternative funding option to help your business get back on track, a non-traditional funder may be the way to go. There are non-traditional funders out there that can provide you with the business funding you need with online funding or alternative business funding.
Taking the time to research and compare each funding option, will help you find the right type of funding for your business.
Online Funding
Online funding options have become quite popular in the funding market. Especially since traditional bank funding has become so hard to obtain. Small businesses are finding that online funding is an easy solution to their fast cash needs. With easy access and speedy process, its popularity has increased over time.
While this type of funding introduces higher rates than private funders, such as a bank or credit union, it may be the only option a business owner has for funding. Without the credit, length of time your business is required to be in operation, or the collateral needed to be approved by the bank, alternative funding may be the only viable option.
Alternative Business Funding
If you have exhausted all of your business funding options with a traditional banking institution with nothing to show for it other than denial and a waste of time and energy, don't worry! You do have other options.
After the funding reform, non-traditional funders have made it possible for small business owners to receive the funding they need without the stringent funding process that traditional funders demand.
Today, you will find that most small businesses are looking to alternative funding to handle their funding needs. Alternative funders are introducing more attainable funding options for the borrower.
While alternative business funding options have leveled the playing field, making it easier for small business owners to receive business funding, they also have the potential to damage a business.
When borrowing money from any funder, whether it is for personal or professional reasons, be sure that you only borrow what you need, and secure a payment schedule that you or your business can afford to pay back. Taking the time to understand the terms and conditions of the funding agreement before you sign is extremely important.
