Essential Strategies for Securing Small Business Funding

How to Secure Funding for Small Enterprises

Obtaining financing for small businesses has become more challenging due to shifting standards at traditional banks and credit unions. Entrepreneurs should understand key factors that influence their chances of approval. Here are vital tips to improve your prospects of securing small business funding.

Creditworthiness
Maintaining a strong personal credit score is crucial, especially since lenders often consider the personal score of owners with at least 20% ownership. High credit scores (720+) typically yield better loan terms, while scores around 500 may still qualify through alternative lenders.

Thanks to innovative lenders, even borrowers with lower credit scores (around 500) can access funding, often at higher interest rates—up to 80% APR—via options like ACH or Merchant Cash Advances. These loans are usually based on monthly revenue or processing volume and should be a last resort for quick cash needs within 1-3 days, to be repaid swiftly.

Business Duration
Startups under two years may face hurdles with traditional bank loans, which typically require a two-year operational history. However, alternative lenders can support businesses as young as 3 to 4 months, based on monthly income. Companies established for over two years have better access to more affordable, structured loans, broadening funding options as they mature.
Keep in mind, newer businesses often encounter higher APRs due to increased risk. It's advisable to build your business steadily without heavy borrowing in the first two years, focusing on growth and cash flow stability.

Revenue Levels
To qualify for certain loans, small businesses generally need to generate at least $5,000 in monthly revenue over two years. The amount of funding available depends on current financial performance and average daily bank balances. Businesses with lower balances may receive smaller loans, aligned with their repayment capacity.

Collateral Assets
Different types of collateral, such as business assets, home equity, or equipment, can secure funding depending on the loan type.

Business Deposits
Consistent deposits in your business bank account serve as a key asset, influencing your loan options.

Home Equity
Homeowners can leverage their property equity through lines of credit or refinancing to access cash. Selling or refinancing the property provides additional funding options, though investment assets may not qualify.

Equipment Financing
Business-owned equipment can be used as collateral for fast cash. Leasing or sale-lease-back arrangements allow businesses to convert equipment into immediate funds effectively.

Following these strategies can significantly enhance your chances of securing small business financing, helping entrepreneurs grow and succeed.