How to access business capital for the first time

We had Michelle Lambright Black, a well-known credit expert and founder of CreditWriter.com, contribute a guest post for us about accessing business capital. Check it out and learn from the experts on Markaaz!  

We had Michelle Lambright Black, a well-known credit expert and founder of CreditWriter.com, contribute a guest post for us about accessing business capital. Check it out and learn from the experts on Markaaz!   

Whether you’re seeking funding to start a new company or grow your existing one, accessing business capital for the first time can be tricky. According to a Federal Reserve study, only 37% of the businesses that applied for financing in 2020 were approved (PPP loans and emergency funding excluded). Even before the pandemic, around half of the companies that sought capital in 2019 received denials.   

If you want your search for funding to be successful, you’ll need to ensure your business comes across as a good investment for lenders or investors. The more attractive your business looks to others, the more likely you will secure the capital you need.   
 

Step 1: Look at your business from an outsider’s perspective.   

When you apply for any business capital, a lender or investor will put your company under the microscope. A lender must carefully evaluate multiple aspects of your business to determine whether loaning you money is a good investment.   

The same principle applies to investors, too. Any experienced investor will have a detailed risk-assessment process that your business must undergo when seeking funding.   

Lenders or investors may consider several factors when you apply for business capital, including:  

  • Personal Credit Reports and Credit Scores of business owners  
  • Business Credit Reports and Credit Scores  
  • Length of Time in Business  
  • Annual Revenue  
  • Cash Flow  
  • Profit and Loss Metrics  
  • Existing Debts  
  • Available Collateral   
  • The Ability to Verify Your Business and Its Owners  

When you understand the details that matter to investors or lenders, you can help your company come across in the best light possible. For example, suppose your personal credit scores are low. In that case, you could try to improve them by paying down credit card balances, correcting credit reporting errors, and making other credit-positive moves before you apply for business capital.   

Learning whether a lender is likely to view your business as a high-risk or a low-risk borrower may also help set realistic borrowing expectations. This information can guide you when choosing the best business funding options for your specific situation.  

Step 2: Figure out how much money you want.  

Next, you’ll want to determine how much funding your business needs to achieve its goals. If you plan to apply for a business loan or some other type of financing, it’s also critical to determine how much money you can afford to borrow. You can estimate this figure by comparing your company’s monthly cash flow (after expenses) to the monthly payment amount of a new loan.   

The exercise of breaking down why you’re seeking capital (and how much money your business needs) can benefit you in two ways. First, it can help you develop a number that will guide you as you look for financing or investment opportunities. Additionally, it can empower you to articulate clearly why you need business capital and how you intend to use those funds with potential lenders or investors.           

Step 3: Consider different funding options.   

When you’re trying to secure business capital for the first time, your funding choices may be limited (and possibly more expensive). Yet, there are still plenty of resources to consider. Depending on your company’s goals and the level of risk it represents to lenders or investors, one of the following options might work for you.   

Traditional business loans  

A traditional business loan from a bank or credit union can often be one of the most affordable ways to borrow money for your business. Yet, it may not be easy to qualify for this type of loan, especially if your business is young or has credit challenges.   

Before you apply for a business loan, it’s important to gather documentation that can help the lender verify that your business is legitimate and profitable. A business plan, financial projections, profit and loss statements, business and personal tax returns, and more are likely to be on the list of required documents. You can ask the lender for a complete requirements list before applying.   

SBA Loans  

The US Small Business Administration, or SBA, offers more than a dozen government-backed loan options that might work for your business. Because the SBA guarantees the loans, there’s less risk involved for the bank or credit union that issues them.   

SBA loans are known for having lengthy application processes and strict qualification standards. But if you can qualify for this type of business funding, you’ll likely receive more attractive interest rates and terms than you might encounter elsewhere.   

Venture Capital  

If you need significant funding for your business, venture capital may be worth considering. Investors, known as venture capitalists, can provide companies with the capital they need to reach their goals. However, venture capitalists typically seek equity or an ownership stake in your company in exchange for an investment. And it’s common for investors to want a voice in the management of your business as well.   

Venture capital isn’t a loan, so you don’t have to worry about making monthly payments toward debt. However, you’ll typically need a solid business plan and the ability to demonstrate that your business is on a course for rapid growth to pique the interest of potential investors.   

Alternative funding  

In addition to the traditional business capital avenues above, you might want to consider alternative business financing options for your company. These may include:   

  • Vendor Credit  
  • Online Loans  
  • Merchant Cash Advances  
  • Business Grants  
  • Working Capital Loans  
  • Equipment Financing and Leases  
  • Business Credit Cards  
  • And More  

Many of these options feature higher interest rates and fees. Yet, in exchange, you may find easier-to-satisfy approval criteria that make it easier to secure an influx of cash for your business.  
 

Step 5: Compare offers.   

Once you settle on the funding option you believe will best fit your business, your final step is to compare offers. Shop around with multiple lenders to review interest rates, fees, and loan terms.   

Although you may feel pressure to secure additional capital for your business, it’s important not to rush the process. Whether you decide to borrow money or take on investors, you want to make sure that you find the best deals possible to help your business thrive.   

Markaaz provides you with a one-stop-shop platform that helps your business succeed. The Markaaz team is in the process of implementing new features that will increase access to capital and reduce the friction in payments. We work with leading companies, both small and large, to ensure you have all you need to succeed in one place.   

Join Markaaz today and be the first to learn about our new cash flow features.   

Michelle Lambright Black  

About the Author: Michelle Lambright Black is a credit expert with over 18 years of experience, a freelance writer, and a certified credit expert witness. During that time, she has written for numerous publications, including FICO, Experian, Forbes, US News & World Report, and Reader’s Digest, among others. She specializes in credit reporting, credit scoring, the intersection of credit and financing (business, mortgages, credit cards, loans), budgeting, and identity theft.   

Michelle is the founder of CreditWriter.com and HerCreditMatters.com—blogs aimed at helping people take charge of their credit and finances to lead happier, less stressful lives. She firmly believes that everyone deserves a second chance (or a 20th chance) when it comes to money management and that any credit situation can be improved with the right plan and hard work.   

When she isn’t writing or speaking about credit and money, she loves to travel with her family. She also enjoys taking Tae Kwon Do classes with her children. Michelle, her son, and her daughter all hold first-degree black belts.  

You can connect with Michelle online on Twitter and LinkedIn

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