Business financing is the activity of funding for a business whether it is just starting or is expanding. Business owners face costs every single day and sometimes some funding is needed to help the business grow. Business financing can help companies of all sizes push through any financial difficulties and expand their operations.
There are two main types of business financing, debt financing and equity financing. Most companies use both of these funding types to get cash for their business.
Debt financing comes from a bank or lending institution and is similar to a mortgage or car loan. You obtain the funds from the lender and then you repay it. It typically accrues interest until the funds that are borrowed are repaid in full.
There are a few advantages to using debt financing including:
There are also a few disadvantages to debt financing as well:
Equity financing is where you receive capital in exchange for selling part of the ownership of your company through the sale of shares. Equity financing does not have to be repaid unlike debt financing.
There are a few advantages to using equity financing including:
There are also a few disadvantages to equity financing as well:
Business financing is flexible, and you are in control of how you use the funding. Some ways you can use business financing is to hire more employees, expand or open a new location, purchase technology or supplies needed for production, working capital so you have cash on hand in the case your business is in need of it and much more.
Here is list of the types of business financing available for businesses:
It is crucial that you do your research on financing your business before considering which type of financing is best for your business.
Regardless of which type of business financing you decide to apply for, you must be prepared in advance to avoid any delays in the approval process.
Take the time to prepare a business plan that outlines your long-term business goals and your strategy on how you will achieve these goals. Some lenders may not ask you for a business plan but if you show up with one, it can help increase your chances of approval. Be sure you are able to articulate in dept of what your business plan entails.
You will also need to gather your financial statements including the balance sheet, income statement, cash flow statement, tax returns and bank statement for you and your business.
Additionally, your credit score can make or break your application so be sure to pull your credit score ahead of time and fix any errors if any on your report. The better your credit score is, the lower the rate you can receive.
You will need to decide how much financing you need, and which financing option will be the best for your business. Knowing how much money you need is important too and you will need to be specific for the reason behind seeking funds. Figure out how much you need and how long of a repayment period you need before you apply.