By Yhordan Serpentini | May 26, 2023
When it comes to being an entrepreneur and running a small business, credit funding can be a crucial source of access to capital to help your company grow. Whether you’re looking to finance a new project, purchase inventory, manage liabilities and assets, or expand your operations, securing credit funding is a vital step in achieving your goals; however, the process of obtaining such funding can be not only really complex but also challenging—especially for those who are new to the world of finance. In today’s blog, we’ll tackle seven of the most important and essential steps that are required for credit funding.
1. Evaluate Your Credit Score
One of the very first steps you should take when seeking credit funding is to evaluate your credit score because it is a numerical representation of your creditworthiness, and it plays a significant role in determining whether or not you’ll be approved for credit. Just like how colleges review your academic history to determine if you’re a qualified candidate, banks and investors will also want to review your credit score to determine if you are financially trustworthy, credible, reliable, and responsible.
A high credit score can make it easier to secure credit funding since it indicates that you are financially responsible, while a low credit score will make it more difficult or even impossible to secure funding since it indicates you are financially reckless and unreliable.
To evaluate your credit score, you can request a free credit report from one of the three major credit bureaus: Equifax, Experian, or TransUnion. You should review your credit report carefully, looking for any errors or inaccuracies that could be dragging down your score. If you find any mistakes, you can dispute them with the credit bureau to have them corrected.
2. Prepare Your Financial Statements
Another essential step required for your small business to secure credit funding is to prepare your financial statements. Your financial statements, including your balance sheet, income statement, and cash flow statement, provide a snapshot of your company’s financial health. Lenders and investors will use these statements to evaluate your business’s ability to repay debt and generate profits. This is crucial because even with a high credit score, investors will refuse to fund your company if there is no clear sign of positive cash flow to return their money.
3. Determine Your Funding Needs
Look, you don’t walk into a grocery store without a reason to be there in the first place, and likewise, you cannot start applying for any credit funding unless you determine your reasons for funding. It sounds self-explanatory and a little obvious, but you need to be aware of what your needs are and why your business needs funding, to begin with. You should have a very clear understanding of how much money you need to borrow, what you’ll use the funds for, and how you plan on repaying the debt. This information will help you choose the right type of credit funding and ensure that you’re only borrowing what you need.
4. Research Your Credit Funding Options
Research, research, research! There are many different types of credit funding available to small businesses, including bank loans, lines of credit, credit cards, and alternative financing options. Each type of credit funding has its own advantages and disadvantages, so it’s detrimental to research your options carefully before making a decision. If you are unsure of what options are available to you, and/or which ones to choose, consider giving us a call to work with a consultant to help you evaluate the right financing solution for your business’s needs.
5. Prepare Your Loan Application(s)
Once you’ve determined your funding needs and researched your credit funding options, it’s time to prepare your loan application. Your loan application should include your financial statements, business plan, and any other supporting documentation that lenders or investors may require. Make sure to read the application instructions carefully and follow them closely to avoid any delays or rejections. You may want to take working with a business lawyer into consideration, to review your loan application and ensure that it’s complete and accurate.
6. Submit Your Loan Application(s)
After completing the last couple of steps, and after you’ve prepared your loan application, it’s finally time to submit it to your chosen lenders or investors. Note that, just like applying to universities, you don’t want to put all of your eggs in one basket, so applying to multiple lenders will increase your chances of approval. Additionally, be prepared to provide any additional information or answer questions from lenders or investors as they review your application. There might even be some terms to your credit funding that will need negotiating, such as interest rates, repayment periods, and collateral requirements.
7. Manage Your Credit Funding
If you were approved for credit funding, then the last essential step you MUST complete is to manage your debt carefully. Make sure to make all your payments on time and in full to avoid damaging your credit score. If you can’t manage alone or need advice, seek a financial advisor or consultant to lead you in the right direction.
At Jaeli Capital Consulting, we know every business and their reasons for seeking out funding are unique. We are dedicated to you, your time, and your business, which is why we provide only the best. If you require business credit, are in need of access to capital, need consultation or financial advice, or are looking to improve upon your business through comprehensive reports, content creation, or SEO optimization, consider looking at our available packages on our Home Page, or giving us a call.
Disclaimer: This blog is not intended for financial advice
Sources:
- Carbajo, M. (2019, December 5). How to build business credit quickly: 5 simple steps. sba.gov. https://www.sba.gov/blog/how-build-business-credit-quickly-5-simple-steps
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