Running a business is like an evolution process. The more you grow, the bigger challenges you face. This is why Darwin’s “Survival of the Fittest” theory explains the ups and downs in the life of a company, as only those businesses manage to survive who have what it takes to face the music. A smart brain on top of the company’s hierarchy holds the key as he or she is the one who is going to make all the decisions. Some of the decisions bode well for the health of the company whereas many others backfire. In a bid to keep pace with the competitors, the company always needs to maintain growth.
Why Need Financing?
During the growth phase, a company needs financial injection at several stages which allows it to expand its operational capacity and its reach among the market. The large or established organizations have an advantage to somehow find better sources of funding as they do have reserves in their books to support their future financing needs.
The large organizations also carry a very good reputation with banks and lending institutions as they have an extra advantage to finance their growth requirements from banks with a minimum effort.
On the other hand, the life is not as rosy for the small and medium sized enterprises when it comes to find financial resources for the growth. Such companies not only contribute heavily towards a country’s economy but they also create the most number of job opportunities.
Challenges for Small Businesses
The actual challenge for small businesses is the face that they find it hard to convince a lender to buy risk in their setup. Normally they are very small in size, in terms of turnover, clients, revenues, employees and growth. So when small businesses see any opportunity for growth, their biggest hurdle is to arrange funds to finance their growth.
The decision to borrow funds or taking loans is a tough one. Moreover, these companies also have to select the right lender with the right terms and conditions for the financial injection. There are some tricky conditions associated with the loan agreements. Some of the lenders ask for mark-up, and the percentage of mark-up mostly depends on the health of the company’s balance sheet or financial statements.
Some of the lenders are actually investors. They take definite percentage of ownership in your organization in return of the amount they invest in your company. The financing firms also charge specific fees which in most cases is the fixed percentage of the approved loan amount. So it is for you to decide how wisely you negotiate your terms and conditions with such firms and lending institutions.
Technology has the Answer
The use of modern technology has helped small business a great deal in finding various sources of financing for business growth in short time. Technology has also minimized the length of procedure for obtaining loans besides cutting down many unnecessary documentation which used to cause delays in the past. Now most of the loan applications are processed online whether it’s personal loan or corporate loan. Moreover, the companies now have the advantage of knowing the exact amount they need to expand their operational capacity through business loan calculator.
Technology has also eased out the process of verifying the information provided by applicant and helped in decision making. With use of technology, most of the decisions are now data-driven. The lenders also focus on small organizations as they lend small amounts to many small businesses with good returns. Also traditionally, the recovery rate with SMEs is considered to be better than the large corporations.
There is another revolution in lender’s approach these days. The lenders are now giving more options to the applicants for obtaining loans and making it more viable for their business growth. In the past, the lenders demanded high value collateral to process loan. But now, the lenders often require blanket lien on entire business or sometimes minor percentage of ownership in the business.
Your Online Financing Options
A number of online lending options are available now to the companies. Following are some of the traditional financing options:
- Bank Term Loans
- Bank Line of Credit
- Equipment Financing
- Merchant Cash Advances
- SBA Loans
Online financing options are more convenient as they involve less documentation and quick processing. Followings are some of the options for online financing:
- Online Term Loans
- Online Lines of Credit
- Loan Matching sites
It is also very important to analyze in detail why you need the loan. You only apply if you are able to answer the following questions:
- What is the need for this loan?
- How rapidly I may need the capital?
- What is my business and personal credit score look like?
The above questions are very important to consider before applying for loan. It is also important to check and verify the repute of lender before you apply for a loan from them. If the lender enjoys a good reputation, you will not face many hurdles like excessive paperwork, long application process or higher fees, etc.
Evaluate Cost of Borrowing
You should also evaluate the cost of borrowing the money. Is it worth taking loan on such higher interest rates? You can always find an alternative option if you expand your research. It is important to evaluate the two most important factors for any funding application process. The first is the need. You must analyze how important and beneficial this loan amount is for your business. Will it serve the purpose or will it drag you in a never-ending loan repayment cycle?
The importance of need and effective utilization of the funds is crucial. The second important factor is the cost of your loan. If the cost of borrowing is hurting your cash flows or you are getting stuck in this loan’s repayment cycle, it will become extremely difficult for you to focus on your core business activities.
This vicious circle of mark up and principal amount can become very harmful, not only for your business but for your health as well. Everyone likes growth. Whether you are business owner or doing job, growth is one of the biggest motivational factors and driving tool. No one wants to see his business struggling at the same stage after five or ten years of its existence. We all are driven by the growth motivation.
But how we can achieve this growth or execute our plans to achieve growth targets is important. We continuously need to evaluate our plans and growth strategies, and make decisions with a positive approach. Smaller companies are more passionate about growth. When they see the opportunity for growth, they want to capitalize on it at any cost and this is the most decisive period for any such company.
The complete knowledge about opportunity, need and cost analysis of the loan amount and execution of the plan is what makes a company take the fast track to growth.