6 Reasons It’s Time for Your Small Business to Seek Business Funding

By Megan B. Shepherd

If you run a small business, you know that it often goes hand in hand with looking for financing, typically through business loans or business funding. However, the benefits of getting business funding to aid your growth sometimes outweigh any borrowing costs. Which begs the question, when should you look for outside financing help?

Here are six times when seeking funding could be the right choice for your business.

1. You have a specific growth project in mind

As a business owner, growth is always on your mind. However, taking out a loan is best when you’ve identified a specific growth project, especially if time is of the essence. Maybe you’ve identified a new market to break into, or you’re introducing a new product.

Once you’ve mapped out your growth plan, including the cost and return, it’s a good time to seek funding to kick-start your project. Be sure the return you expect from the investment outweighs the cost of your business loan.

2. You have a cash flow problem

It’s not uncommon to run into cash flow problems at some point while running a business. You may have experienced extreme growth and had to use cash reserves on new equipment or employees to handle the influx of customers. Or maybe you have a seasonal business and are in a downtime.

If you’re experiencing issues that affect your business’s cash reserves, it may be time to seek funding to bridge the cash flow gap and keep your business afloat.

3. You’re making a big purchase

Whether you’ve decided to expand into a new office location, upgrade your equipment or add to your fleet of vehicles, a large purchase could signal a good reason to borrow.

Seeking a business loan to fund a big purchase offers a way to get a large sum of money fast while protecting your cash flow and any business reserves.

4. You’re hiring

There are countless reasons why you may be hiring or expanding your workforce, and it’s crucial to running a growing business. But hiring more employees comes at a high cost. You’ll want to consider the cost of recruiting skilled workers, training your employees and the increase in your payroll costs.

Access to a lump sum of money can help ensure you have enough funds to hire, train and pay your new employees.

5. You’re investing in marketing and advertising

Maybe you’re only a year in, or maybe you’ve been in business a while. Either way, investing in marketing is a surefire way to grow your customer base. However, the best success in marketing comes from marketing done right. That means you’re ready to invest in research, marketing materials, marketing experts and several forms of advertising.

Getting a business loan offers you the lump sum of money you’ll need up front to fund your marketing efforts.

6. You’re a newer business owner

If you’re ready to grow but don’t have the funds to act on opportunities, it may be time for your new business to seek funding. A startup loan can offer you quick access to cash to fund rapid growth, invest in technology, purchase materials and more.

Make sure to weigh the benefits of getting your business off the ground more quickly against the costs of taking on debt. In many cases, it’s best to balance getting a business loan with bootstrapping as you grow your new business.

Types of business loans to consider

Once you’ve decided on taking out business financing, you’ll have a long list of loan types to consider. It’s best to start comparing options online or through an online marketplace where you can compare multiple options at once. Here are a few types of loans to consider:

• Term business loans. These types of loans come in short- or long-term options. Longer terms could mean a lump sum amount you repay in fixed, monthly installments and include interest.
• SBA loans. SBA loans are government-backed loans you repay in fixed monthly installments. They require collateral and a down payment, so this type of loan is best for established businesses that may have a better shot at qualifying for a competitive rate.
• Business line of credit (LOC). A business LOC is a revolving line of credit. With this type of funding, you only pay interest on what you borrow. And, credit is available again as you pay it down.
• Invoice financing or invoice factoring. This type of funding offers you a way to get money in advance on your unpaid invoices.
• Merchant cash advance. This type of short-term business loan lets you borrow against your future credit card sales. Eligibility requirements are generally more relaxed than other types of loans but are usually more expensive.
• Equipment financing. This type of financing is specifically for buying equipment for your business. It offers a fixed rate and uses the equipment as collateral, which could mean better interest rates than other types of financing.

Bottom line

There are many scenarios where taking out a business loan is a smart business decision that can help you fuel growth and meet financial goals. If you fall into any of the above categories, it may be time to consider business financing.

Start by tallying up how much money you need to borrow, and then compare multiple lenders and loan types to find the best loan terms for your situation.

About the author:

Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time, Reviews.com, and carinsurance.com, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.