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If you are an entrepreneur and you are thinking about what factors may affect your business funding, look no further. Here you will find all the information you need to know. Keep on reading!
To start or grow your company without giving up any equity early on can be difficult and you may need access to business funding. Having a solid credit score makes lenders more comfortable with your potential financial behaviors and they are therefore more likely to approve your loans or lines of credit that may be essential to start or expand your business effectively.
Factors that can affect financing your business
Among the main features that may affect your business funding are:
1. Your professional profile
The founders need to understand your project and know that you’re a good risk. You need to establish your credibility and show that you have done your part. You’ll also need to show you have thoroughly researched your project.
Is your work experience related to your new business? How did you come up with the idea and what’s your industry experience? You need to prepare your case because your answers will be evaluated by your lender.
2. Your project’s viability
You will need to show a business plan that leads to action. How does the loan you are asking for fit into your company’s overall strategic plan?
Questions that you will be expected to answer about your business plan include the following:
- Where are you going to find your clients?
- How did you choose your location?
- Where are you going to find your suppliers?
- How many customers do you expect in a month?
Have you registered your company with the Secretary of State where you are operating, or have you been operating as a sole proprietor? If your business isn’t incorporated, you are either taking money for a product or service in your own personal name, or you have set up a DBA (doing business as) with a bank and are probably registered as a sole proprietor.
Most lenders prefer not to make loans to sole proprietors and you cannot receive a business loan without being an actual business. This means you will not be able to develop a business credit score until you are incorporated. Not to mention, if you’re not incorporated and don’t have a business bank account, for all intents and purposes, your entity is not recognized as a true business.
4. Your financial strength
A loaner will want a detailed breakdown of your financial projections for at least the first year of your operations and up to two years. For example, if you say you are going to have 100 clients a day and they’re going to spend $10 each, then you will have $1,000 in revenues. How much do you expect to make in your first year?
Your personal credit score is extremely important because it’s often the only major factor that a bank can assess for a start-up business. A poor credit score is a red flag for a bank and could make it a lot harder for you to get a business loan.
For a start-up business, the bank will typically ask you to sign a personal guarantee, which makes you responsible for the loan.
5. Payment history
Payment history is also important for your business because it will determine your Paydex score, which is the score calculated from your business credit profile.
If you don’t have a good record of these numbers and statements, it’s almost certain you won’t get the funding you are looking for. There are many companies that offer affordable bookkeeping services online. As an alternative, there are also a few popular software companies that allow you to do your own bookkeeping, and they provide tutorial videos and support.
Lenders, and even other companies, can review your Paydex score to determine if they are willing to extend credit, loan money or even work with you. If you haven’t already, make sure you get a DUNS number. This will start your journey of building your Paydex score.
It is recommended to pay all your invoices or business bills early. Paying on time can get you a satisfactory Paydex score, but paying very early can make that score even better.
While highly profitable companies are always impressive, consistent cash flow is an even more important factor in commercial lending. Lenders know that cash flow gives you the ability to repay, not paper profits. Therefore, even if your business displays historically modest profits, should your company display consistently high cash flows, lenders look favorably on loan requests.
While every company is different, the basic factors involved in business financing are constant and enduring. Business financing is more complex than personal or other secured loans, with added evaluations used for business financing. Still, as experienced lenders note, all good loans are based on the same factors.
The choice of the source of finance depends upon a number of factors further depending upon the time, purpose, type of organization, etc. and the financial needs of a business are of different types: long term, short term, fixed and fluctuating.
Therefore, business firms resort to different types of funding to raise their business. If you need funds or help to land, refund or raise your business, let us help. We would be delighted to be part of your business success!