Searching for appropriate business financing options can sometimes feel like a daunting task.
There are dozens of strategies available. There are traditional bank loans and lines of credit. There are alternative lenders. Equipment financing. Invoice financing. The list goes on…
The problem is, most business owners don’t have a clue which financing strategy would work best for their unique situation.
Instead, they blindly apply for the wrong products and get rejected.
Or worse, they fail to pursue growth opportunities because they didn’t know a better financing option existed.
Fortunately, by taking a little time to understand the available financing options, any business can secure the capital it needs to grow.
In This Guide:
- Why Smart Financing Is Critical Right Now
- The Top 7 Financing Strategies That Actually Work
- How To Choose The Right Option For Your Business
- Common Financing Mistakes To Avoid
Why Smart Financing Is Critical Right Now
The days of business financing being about mere survival are over…
Today, smart financing is all about strategic growth.
According to the Federal Reserve’s Small Business Credit Survey, 59% of businesses sought financing specifically to cover operating expenses. However, the smartest companies use financing to grow operations and jump on new opportunities.
This is a complete 180 in thinking.
Business owners that work with specialists like Crestmont Capital to find the right financing solutions for their business purposes discover a whole new world of growth potential that their underfunded competitors never see.
The right capital partner can make all the difference in the world.
Take this scenario, for instance…
A business that has the proper financing already in place can buy new equipment before peak season rolls around. They can hire more staff in advance of increased demand. They can purchase inventory when their suppliers offer discounts.
Try doing those things without financing and you’re always going to be playing catch-up.
The Top 7 Financing Strategies That Actually Work
Not every financing option works for every business. In fact, some options are incredibly effective for certain businesses while being completely wrong for others.
Below are the seven financing strategies that consistently produce the best results…
Term Loans
Term loans are by far the most traditional and widely recognized form of financing. Borrow a lump sum of money and pay it back over an agreed period with interest.
Simple, right?
Term loans are ideal for:
- Major equipment purchases
- Business expansion projects
- Real estate acquisitions
The key here is matching the loan term to the expected useful life of whatever is being purchased with the funds. For instance, don’t get a 15-year term loan for equipment that only has a 5-year life expectancy.
Business Lines of Credit
This is one of the most flexible and underutilized financing tools available to businesses.
A line of credit works just like it sounds. You have access to funds when you need them. You only pay interest on the amount that you use. You pay it down and use it again.
It’s perfect for smoothing over cash flow gaps or taking advantage of unexpected opportunities.
Seasonal businesses, in particular, will love lines of credit.
Why? Many companies experience predictable ebb and flows with their revenues. Sales drop in off-peak seasons while fixed expenses continue unabated. A line of credit smooths over those cash crunches without having to re-apply for a new loan every time.
Equipment Financing
Need new machines, vehicles, computers, or other types of equipment?
Equipment financing allows businesses to acquire the assets they need without completely depleting their cash reserves.
The assets being purchased often serve as collateral, which means approval and rates are often more accessible than with other types of financing.
Equipment financing also almost always makes good financial sense since the new equipment will almost always drive productivity and revenues upward while the payments are spread out over many years.
Invoice Financing
Waiting 30, 60, or 90 days to get paid by customers chokes up business cash flow.
Invoice financing solves this problem in a snap.
Businesses can tap into a certain percentage of the value of outstanding invoices immediately. When customers pay their invoices, the financing gets repaid. It quickly turns A/R into ready cash flow without the long wait times.
Invoice financing works great for B2B companies that have consistent, reliable customers that just happen to pay slow.
SBA Loans
Government-backed SBA loans are among the best financing terms available.
Lower interest rates. Longer repayment terms. Smaller down payments.
Of course, the trade-off is that SBA loans take more time to process and require more documentation.
But for businesses that have the foresight to plan ahead, SBA loans offer some of the most affordable growth capital available.
How To Choose The Right Financing Option
Choosing the wrong financing strategy wastes valuable time and money.
The following tips can help you make the right choice every time…
Think About The Purpose. Matching the term of the financing to the purpose is critical. Do you need a short-term cash infusion or a long-term investment? Short- and long-term options exist for both.
Factor In The Cost. Interest rates are important, but so are hidden fees and prepayment penalties. Calculate the total cost of each financing option before making a final decision.
Assess Approval Odds. Large banks approve only about 15% of loans from small business applicants these days. Alternative lenders may be more likely to approve, but they typically charge higher interest rates. Be realistic about what’s possible.
Check The Timing. How quickly do you need the funds? Options with quick disbursements work for emergency situations. Longer processing times might make sense if better rates can be secured.
Review The Flexibility. Can monthly payments fluctuate if revenues are seasonal? Are there penalties for early payoffs? Know the fine print so there are no surprises down the road.
Common Financing Mistakes To Avoid
Smart businesses still make financing mistakes that can derail growth potential.
Waiting Too Long to Apply. The ideal time to secure financing is before you actually need it. Most lenders prefer to work with businesses that have the foresight to plan ahead and avoid last-minute emergency requests.
Failing To Shop Around. The first offer a lender presents may not be the best offer out there. Shop around and compare multiple options before making a final decision.
Borrowing Too Little. It’s human nature to underestimate just how much capital will be needed. Borrow more than you think you’ll need to build a buffer for future expenses.
Neglecting Total Cost. A low monthly payment doesn’t automatically equal a good deal. In many cases, a shorter term with higher payments can cost less over the life of the loan.
Mixing Personal and Business Finances. It’s generally advisable to keep business financing separate from personal credit. That protects both the individual and the business.
Wrapping It All Up
Smart financing strategies are the difference between businesses that grow and businesses that struggle to survive.
The right capital at the right time can allow businesses to:
- Expand strategically when opportunities arise
- Manage cash flow smoothly year-round
- Gain a competitive edge over underfunded rivals
There are dozens of financing options available, but not every one works for every business. Term loans are great for some situations. Lines of credit work for others. Equipment financing, invoice financing, and SBA loans each have a role to play.
The key is understanding all of the available options and aligning them with the specific needs of the business.
Businesses that put in the time and effort to do that are the ones that end up thriving.
