Self Quiz: What Funding is Right for My Small Business?

10 Questions to Ask Before Applying for a Small Business Loan

Small businesses need to tread carefully when they’re looking for funding. There’s a lot of options available. Taking the time to take this 10 question self quiz will steer you toward the solution that fits your needs and budget.

10 Questions to Ask Before Applying for a Small Business Loan

Do I Need the Cash Quickly?

If you want to expand you outdoor patio but your kitchen sinks start to leak in the busy season,  your priorities shift quickly. These types of emergency situations require fast cash. The best type of loan here doesn’t require any collateral: usually a merchant case advance.

What Payment Options Suit Me Best?

Getting a cash flow history together or your purchase orders is only part of what you need to do to get a loan. Taking the time to factor in how and when you’ll pay it back is a big part too. Different types of loans have different requirements.

Hanna Kassis works at Segway Financial. He spoke with Small Business Trends about how this aspect of taking out a loan needs to be carefully considered.

“People need to look at the frequency of payments and whether daily, weekly or monthly suits them best,” he said.  This effects the type of loan you get.

How Does my Credit Score Factor in?

You can’t ignore the essentials if you hope to get funding for your small business. Your credit score is extremely important, but not in every case.  For a small business loan you generally need to have great FICO numbers. However supplying invoices or purchase orders can be an alternates for some other types of business loans.

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Having a bad credit score might limit you, but you can still apply for some types of funding.

Can I Pay a Loan Back?

Small business owners need to be sure there’s enough money coming in to pay any loan back.

Kassis explains, “Their cash flow needs to support the payment size. Without a profit margin, small business could find themselves in the negative quickly.”

What Kind of Collateral Will I Need?

For some kinds of financing the answer is none. For others — like a small business loan — showing assets is necessary. Long term business investments usually require this.

What are Some Types of Paper Collateral?

There are several examples of so-called “paper collateral.”

“You need to find a loan that matches your business,” Kassis says. “For example, if you have receivables, you should get Invoice Factoring.” There are other specific requirements for other loans like cash flow histories and even actual invoices.

Does Sitting on an  Application Matter?

In a word, yes. That goes for A/R factoring and everything else. Whether you need a quick fix like a merchant cash advance or something more long term like a business line of credit, following through once you start the application matters. If you stall, lenders might reunderwrite the file. That creates doubt and decreases your chances of getting the money. Hesitation can ruin your chances of getting the loan that’s the best fit.

Will I Need More than One Loan?

There’s a big difference between a loan to fix a broken machine and one that gets you over a recurring seasonal dry spell at your restaurant — or other business. Decide if your needs will be ongoing.  In some cases it means the difference between waiting for a few days to get your money or up to a month.

How Quickly Will I See an ROI?

The project you’re thinking about might not generate revenue right away. And in the case of a renovation, for example, may take some time to complete. The cost of the loan comes into play here. For example, a cash advance would be too expensive if you’re building an addition. However, it might be perfect for a marketing project.

How much do I want?

If you need more than $100,000 dollars, you need to have your financials in order.

“You should have your basic business information handy,” Kassis says. ” You need to put together things like merchant accounts, bank statements and business licenses .”  He also suggests you use an online tool like QuickBooks to set up financials.

Finance Specialists Photo via Shutterstock


Rob Starr Rob Starr is a staff writer for Small Business Trends. Rob is a freelance journalist and content strategist/manager with three decades of experience in both print and online writing. He currently works in New York City as a copywriter and all across North America for a variety of editing and writing enterprises.

4 Reactions
  1. Right. You should define if the expense is necessary and contributes to the future of your business. This will help you discern if the expense is needed or it is just a luxury.

  2. You need to look at your current situation honestly and your capability to pay. This should help you weigh your options when it comes to getting a loan.

  3. You really need to sit down and take an honest look at your business before taking a loan. This will prevent you from getting more than you can chew. If you know what I mean. Also, consider if the money for upgrade is necessary.

  4. There are a couple important aspects to consider when utilizing debt financing to grow your business. One is to use the right tool for the job, for instance you wouldn’t try to use a hammer to fix a leaky pipe, you would use a pipe wrench. So understanding a cash advance loan is a “term loan” meaning if you are making a significant purchase and you would like to finance the purchase over time, a term loan is the proper choice. But if you are hoping to gain access to extra working capital every month to help make payroll on a large contract, then a line of credit or invoice factoring is the correct choice.

    Another thing to consider is finding the right finance company or bank for your particular industry. A company that finances trucking companies likes to work with those sort of businesses, same for construction or even healthcare industries. This could even be a consideration for a small company vs a larger one. Getting turned down by a commercial finance company that doesn’t usually deal with your industry is not a bad situation. You need to keep looking to find the right match for your business.