I need Business Financing…What Should I Do?
Note: This is a guest post by Tom Gazaway, founder and President of Hawkeye Management, a critical partner of Lendio that specializes in unsecured business credit lines for small business owners. We’re excited to have him on the blog. More of Tom’s bio is below.
We’ve found over the years that entrepreneurs & small business owners have 4 basic questions when they are starting, building, & growing their businesses and they need financing. They want to know:
1 – Can you help me get my financing?
2 – How much funding can I get?
3 – How long will it take?
4 – What’s it going to cost?
We’ve also found [esp. since The Great Recession] that small biz owners rarely know where to turn to get these questions answered. Banks can rarely help them…when is the last time you talked to a business owner who complained that the bank keeps throwing low-cost financing at them? Yeah, it’s probably been a while. Conversely, when is the last time you heard a group of entrepreneurs or small biz owners who complained about how difficult it is to find financing? Yeah, that one might be a bit more common. I think what it ultimately boils down to for small biz owners in need of funding is really one basic question:
What Should I do?
Fortunately, there are places like Lendio where business owners can go to get those answers. Here’s 3 quick questions that should also help you to understand where to turn, what your options will be, and how to get your funding.
1. Do you need debt, equity, or a combination of both?
The KISS principle of Keep It Simple Stupid would want us to remember that it’s really not that complex. When you need capital you will either give up equity or take on debt…or both. Equity solutions tend to be things like venture capital, private equity, angel investors, or the Three F’s of family, friends, and fools. With those equity solutions you are giving up some % of ownership in exchange for the capital infusion. With the exception of the Three F’s, your equity solutions are usually going to have you negotiating with highly experienced and savvy individuals or groups. Have you seen Shark Tank on ABC lately? That’s the idea. Debt is where you are simply borrowing money from a lender and agree to pay back a certain amount along with some sort of “return on investment” to the lender. Debt is almost always less expensive but that doesn’t mean it’s always what’s best. If you need millions of dollars to bring a new technology product to market then you’re probably going to need some equity investors. On the other hand, if you need $50k to get started with your e-commerce business then you can likely get that done with loans or some lines of credit.
2. Do I have collateral to pledge to a lender?
You may or may not have collateral to offer lenders in exchange for your loan or line of credit. When you have collateral such as equity in your primary residence, a retirement account, stock/bond portfolio, etc. then you will have some additional options “if” you want to pledge or risk that precious collateral. However, if you don’t have that kind of collateral then there are still options but it’s just a smaller list of options. In fact, ROB’s (rollover as business startups) transactions are probably the most popular financing tool for new franchisees entering the franchise space. If you have questions about that then you’re in a good place and the folks at Lendio are well-prepared to help you to utilize those funds and to properly execute that strategy so that it’s done in an IRS-compliant fashion [and, of course, that's always a nice thing to NOT have the IRS chasing after you].
3. How good (or bad) is my personal credit profile?
There’s no doubt that perhaps the biggest factor that will improve your chances of getting your financing and getting the best possible terms will come down to your credit profile. Remember, I said “most” important – not the “only” important factor. Companies like Lendio have a variety of ways to help you get your funding if your credit isn’t so great. As a quick sidebar, make a new years pledge [in November - better late than never right?] that if you do not have great credit to do something about it and improve your credit profile so you can have more options and better options in the future as you grow your business.
If you have ever thought that you would love to have some financing to start, build, or grow your business but weren’t sure where to turn then you’re in the right place. Ask yourself these three questions and you may not be all the way around third base and headed for home but you’re definitely ahead of most people and you’re at least rounding first and on your way to finding your financing. Get it. Use it wisely. Grow your business. Have fun. Live your Dreams.