Access to external financing is critical to business growth and success.

Business success takes strategy, planning and oversight. Continuing that success for the long term requires keeping a close eye on your business, your customers and trends in your industry, so you’re prepared to take advantage of opportunities when they arise.

At some point, all businesses will need access to capital to continue to meet their short- and long-term goals. According to the 2016 Small Business Credit Survey, 61% of employer small businesses faced financial challenges in 2016.¹

Often, however, the need for financing isn’t given much consideration until you realize that not having it could limit your company’s growth. Pinpointing those needs and the considerations behind them, in advance, can guide your next steps.

Five signs your business needs financing

Flexible financing helps keep your business in front of your customers. It also provides a reliable source to help you consistently cover your normal working capital requirements. To help you better prepare for a future credit need, here are five examples of situations where your business could benefit from outside financing:

1. Growing or expanding your operations. Whether you’re thinking of adding product lines or staff, expansion typically includes additional operational costs. Many of these costs will be incurred before you begin to bring in new revenue. If you’re adding new sales staff, for example, how will you cover their payroll in the short term?
2. Going through difficult times or experiencing cash flow problems. While the goals for your business are most likely centered around continued growth and increased revenue, there may be setbacks on your path to meeting these goals, such as outstanding customer invoices or an unexpected repair bill.
3. Needing additional equipment or assets for a real estate transaction. Purchasing real estate, renovating your existing space, or refinancing your real estate debt can go a long way toward growing your business. However, real estate and construction-related transactions often require specific and/or unique types of funding.
4. Using your personal credit for business expansion. Using your personal credit, like a credit card or Home Equity Line of Credit, to finance business growth can negatively impact your credit score. This can put your personal creditworthiness at risk and hinder your ability to secure future credit.
5. Lacking cash flow to support your rapid business growth. Rapid business growth is a positive sign, but it can sometimes be accompanied by cash flow constraints. The growth could be increasing your overhead and costs faster than you can bring in the cash to pay for them.

Having the money in place in advance can make these activities much less stressful, especially if you need to pay your bills before you have the income to cover them.

Planning ahead can help your business thrive.

In addition to being a temporary fix for cash flow challenges, external business financing is a strategic tool that companies at all stages of business growth can utilize.

It’s not always quick, or easy, to apply for or seek financing when you’re ready and recognize that you need it. It’s critical to recognize the gap early to have ample time to complete all the necessary pre-funding activities.

Clearly defining the future of your business and the related requirements allows you to you see the areas that could benefit from additional funding. Having this information before you need it helps you to better plan for accessing the capital you need for your business continue to grow and compete.
 

Sources

¹ https://www.newyorkfed.org/medialibrary/media/smallbusiness/2016/SBCS-Report-EmployerFirms-2016.pdf