When asked what their biggest challenge was in an informal survey, most entrepreneurs said "financing." Raising capital is a huge obstacle for both new business owners and seasoned entrepreneurs. This is one of the main reasons why bootstrapping remains a favored source of funds for start-ups and small businesses.
Many small businesses have indeed soared to top global brands without any financial assistance. However, such success stories are few and far between. Plus, many of these companies owe their success to more than just their source of funds. The truth is: bootstrapping can be a risky way to fund a business.
Although business financing might seem hard to come by, it's not completely out of reach for entrepreneurs. In fact, securing business capital might be easier than you think — but only if you follow the correct path and look in the right places. Many SMB financing requests are rejected because the applicants unwittingly miss a few items in the application checklist. That’s exactly what we want to address in this article — how to raise capital the right way for a small business.
This five-step guide to raising business capital will walk you through the ideal funding process:
Step 1: Work out how much money you need
The first step in seeking business financing is figuring out how much money you need and what you need it for. This might seem trivial, but it sets the tone for the entire lending process. The amount of cash required and its purpose will help you determine the kind of financing suitable for your business. Subsequently, the choice of financing will dictate your eligibility for approval and the associated due process.
You might need funding for one or more reasons, such as:
- Establish or acquire a new business
- Buy new business equipment or assets
- Cover daily operational costs (working capital)
- Expand the business by increasing its range of offerings, footprint, or market scope
- Seize an emerging investment opportunity
- Supplement the existing income streams
- Sort out debt and other liability issues
Also, you can borrow as much money as you need, although nearly all financing products have a minimum and maximum borrowing limit. But the point is to borrow just the right amount for the intended purpose while also considering repayment affordability.
Step 2: Choose a suitable financing approach
Once you’ve decided what you need the money for and exactly how much you need, you can then determine the type of financing that fits the bill. This is a critical step in the borrowing process because choosing the wrong financing approach can end up hurting your cash flow and overall financial structure.
There are several types of business financing solutions, each with unique funding and repayment features designed for particular use cases and businesses. The trick is finding one that perfectly fits your business and financial needs. For instance, asset financing might be the right choice if you want to buy new equipment for your business. Similarly, a revolving line of credit or a dedicated working capital loan should be your top priority if you're looking to boost your working capital.
You’ll also want to weigh the terms, pros, and cons of your shortlisted options to determine which funding method gives you the best value.
Step 3: Pick a lender
All lenders are not the same. For one, financing terms and approval requirements vary widely between lenders, even on similar products. Second, each lender has their own policies and style of engaging with borrowers, so your financing experience can very well hinge on your choice of lender. Additionally, some lenders work exclusively with certain kinds of businesses or within particular industries.
Clearly, it's imperative to research lenders before selecting a financing deal. Lender evaluation mainly involves comparing similar offerings from as many lenders as possible. You want to find the lender with the most favorable financing terms, repayment structure, interest rate, lending limit, and qualifying requirements.
But researching lenders is often easier said than done. For starters, there are way too many lenders in the financial market to even know where to begin researching. Plus, contacting most lenders usually means filling out lengthy forms and waiting for a response, which might be too involving, time-consuming, and wasteful for busy entrepreneurs.
The good news is that there is a faster and more convenient way to find lenders and financing solutions than manually contacting lenders one by one. Lendzero lets you compare multiple financing offers from hundreds of lenders without filling out endless forms or making long calls. Our proprietary digital lending system will match your business with curated financing options from competing lenders in under a minute. And there’s no need to haggle with lenders because all offers are pre-negotiated for your business.
Step 4: Submit your funding application
At this point, you’ll have already decided on the ideal type of financing, the amount you need to borrow, and the lender to borrow from. All that remains is to file a financing request. However, it's quite easy to go wrong with a loan application. The key point here is to only apply for the products your business actually qualifies for. Otherwise, your application might get denied.
Confirm your eligibility for each financing offer before applying. Check that your business meets the minimum qualifying requirements such as credit score, turnover, enterprise size, and industry. Also, ensure you have prepared all the documents the lender needs beforehand. These may be your financial statements, balance sheets, business plan, etc. Keep in mind that most lenders will reject incomplete or inaccurate submissions.
Lendzero again makes it easier for you to apply for business financing. Our versatile online platform drastically shortens the funding process since everything is handled digitally through online forms, eSign, and file uploads. Plus, our team of expert account executives, success representatives, and underwriters is always on hand to ensure you get exactly what you need.
Step 5: Get funded
If the lender approves your application (which they will if you’ve done everything by the book), the requested funds will be sent to your business account in the stipulated manner. In most cases, the funds are released in one go, while in others, especially with large long-term loans, the disbursement may be split into several phases.
In case your application gets rejected, some lenders are kind enough to point out where you went wrong, and you can just resubmit a revised application. If the lender doesn’t indicate the reason for rejection, review your application more closely; chances are, you missed one or two crucial details.
Give Lendzero a try
Lendzero is undoubtedly the best way to find legit lenders and haggle-free business financing. As we mentioned earlier, the key to raising business capital is knowing where to look. Using Lendzero not only enables you to quickly explore the financial market but also helps you make the right borrowing decisions.
Another good thing about Lendzero is that it's free to use. All you have to do is create a free Lendzero account and answer a few questions about your business, and you're good to go. It’s really that simple. Please reach out to learn more about raising business capital in a success-oriented, stress-free way.