Getting funding for your small business is essential but not always as straightforward as you might think. Here are 7 things about funding sources you might not know about but should.
Small Business Funding Facts
You Need to Keep a Positive Ending Balance
Hanna Kassis works for Segway Financial. He says a small business should not only have money in a bank account before they apply for a loan, but a specific amount at month’s end.
“Lenders want to see that you’ve got a positive ending balance,” he says. “Say you’re anticipating needing a merchant cash advance at the end of the month, go put $500 dollars in your bank account.”
Your Personal Credit Score Affects Your Business Financing
Many small businesses like sole proprietors don’t know this when they try to get financing. However, if you’ve been through a personal event like a divorce that has dented your personal credit, your ability to get a loan can be affected.
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Having a good business plan will help tip things in your favor.
Personal Bankruptcy Doesn’t Always Spell Rejection
Your personal and business finances are often tied together in a lender’s eyes. However, a personal bankruptcy doesn’t always mean you’ll be rejected for a business loan.
Still, you’ll more than likely need to be patient. Personal bankruptcy can stay on a credit score for 7 years. What’s more, many lenders prefer you wait at least 2 years before you apply for a loan.
You can repair a credit score in the meantime by paying bills on time.
Building a Financial History Can Start Small
It’s important to have a good financial history to get a business loan. Experts like Yumi Clark, VP of New Product Development at Capital One Spark Business, suggest you start small if you need to build one up.
“One of the best ways for business owners to prove their reliability, business savviness, and leadership is to establish a good financial history,” she says. “Microloans can help you build financial history that demonstrates you’re worthy of bigger loans in the future.”
Hesitation Creates Doubt
Hesitating after you get the contract creates a doubt in the lender’s mind that can cost you the funding. Hanna Kassis explains.
“If you get the contract and sit on them and time passes, lenders have to re underwrite the file. If there’s hesitancy on the part of the client, lenders start looking for things they weren’t before as a way out.”
Small business should be ready to go through to the end once they start the process.
“Money waits for no one,” Kassis says.
A PO Box Can Sink a Deal
The information required on any application is typically straightforward—name, address, business details, etc. However, a common mistake that can be a deal-breaker is using a PO Box as your business address.
Lenders often view a physical address as a sign of stability and legitimacy.
A PO Box can raise suspicions and may lead lenders to believe that you are trying to hide something or that your business is not well-established.
This principle applies to both your personal and business information. Being transparent and providing accurate and complete details is crucial for building trust with the lender.
If you operate from home and are hesitant to share your personal address as your business address, consider using a virtual office address or a coworking space address.
These alternatives can provide a physical address without compromising your privacy.
Remember, transparency and accuracy are key when applying for business funding. Providing a physical address instead of a PO Box is a simple yet essential step in this process.
Incomplete Applications Raise Red Flags
Missing something as small as a digit in a social security number or ZIP code can be a red flag to lenders. Quite often missing any of these details can cause them to start searching on the Internet to see if there’s any bad content on you posted there.
Double check your input or get a trusted person to look it over before you send it.
Submitting an incomplete application can raise several red flags for lenders. Here are a few reasons why it’s crucial to double-check your application before submission:
- Indicates Carelessness: Missing details, no matter how small, can indicate a lack of attention to detail and carelessness. Lenders may question your ability to manage your finances or run your business effectively if you can’t complete an application accurately.
- Delays Processing: Incomplete applications often require additional follow-up from the lender, which can delay the processing of your application. This can be a significant disadvantage if you need funding quickly.
- Triggers Additional Scrutiny: Missing information can cause lenders to dig deeper into your background to ensure there are no hidden issues. This additional scrutiny can delay your application and may even result in your loan being denied.
- Impacts Credit Score: Some lenders may perform a ‘hard’ credit check as part of their additional scrutiny, which can negatively impact your credit score. Multiple hard checks in a short period can be particularly damaging.
- Reduces Chances of Approval: Ultimately, an incomplete application reduces your chances of loan approval. Lenders may view it as a sign that you are not genuinely interested in the loan or that you are not organized enough to manage the loan and its repayments.
Small Business Funding Facts Summary
|Positive Ending Balance||Having a specific amount in the bank at month's end is crucial for loan approval.|
|Personal Credit Score Affects Financing||Your personal credit score impacts your ability to secure business financing.|
|Personal Bankruptcy Doesn’t Mean Rejection||Personal bankruptcy doesn't always lead to business loan rejection, but it requires patience and credit score repair.|
|Building Financial History Starts Small||Starting with microloans is advised by experts like Yumi Clark to build a financial history that proves worthiness for bigger loans.|
|Hesitation Creates Doubt||Hesitation after receiving the contract can create doubt in the lender's mind and potentially cost you the funding.|
|A PO Box Can Sink a Deal||Using a PO Box as your business address can be a deal-breaker as lenders prefer a physical address as a sign of stability.|
|Incomplete Applications Raise Red Flags||Incomplete applications indicate carelessness, delay processing, trigger additional scrutiny, impact your credit score, and reduce your chances of loan approval.|
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