While new business ideas can abound, finding the proper financing to bring them to fruition is hard to find. According to Statistics Canada, small and medium sized businesses with one to four employees have the lowest loan approval rate. The challenge is that these businesses traditionally have less of a performance history and limited resources to grow their business, which makes it a riskier proposition for the lender.
Here are 10 tips for obtaining financing for SMBs and what to look for once you find a suitable partner:
1. Maximize personal investment. Any finance partner will look to ensure that you have invested a significant amount personally before they will offer any additional debt financing. Many typically won’t finance a startup venture unless they are offering asset based financing.
2. Ensure your personal credit is in order.Because new business ventures are considered riskier, a lot of consideration goes into the principal and whether they can “stand behind” these loans if the business doesn’t succeed. Even if you obtained asset financing, you will need to personally guarantee most types of financing. You can pull your own personal credit report for free once per year. Typically, a personal credit score over 600 is a good base for negotiations with finance companies.
3. Be clear about the type of financing you need. With so many different financing models available you must specify what you require. Is it equipment financing? Is it working capital financing that can be used for general purposes? What amount of money do you need and how much time do you have to get the funding you need? These answers will help guide your search.
Read more from Globe and Mail