Getting Funding for Your Growing Business

Use these steps to determine if now is a good time to get financing.

Q: I'm interested in applying for financing for my business. What's your advice?

A: Obtaining financing is an essential part of launching a new business or expanding an existing company. The process of applying and gaining approval for business financing, however, can be a daunting process. In fact, lengthy applications and cumbersome approval processes often deter many businesses from even applying.

Before you apply, be sure that you have considered whether or not this is the right step for your business. While additional funds may help your business grow, they will also increase your debt and eat into your company's profits. Talk about your need for business financing with an advisor before you proceed.

If you do determine that your business needs financing, here are seven tips you can use to improve your chances of getting approved:

  1. Determine what type of financing you need. Lenders can assist you by providing funds through different types of business loans. In general, types of business loans include term loans and revolving lines of credit. In addition to these traditional forms of debt financing, you may want to investigate whether equity financing, also known as venture capital, is a viable option for your business's capital needs. Become knowledgeable about these types of credit products and choose which one is right for you. For more information on different types of loan products, contact your local lender or visit the SBA'sWeb site.
  2. Prepare a business proposal. A well-thought-out and detailed business proposal is one of the most important items you can bring to a lender or investor. The proposal should include a description of your business, the amount of funds requested, the purpose of the funds and the amount that you will contribute. The proposal should also include a description of collateral and the sources of repayment. This proposal will serve as the basis for your financing application.
  3. Have a third party review your proposal. Before you meet with a lender or investor, you may want to have an experienced evaluator review your business proposal, especially if you are a start-up or a first-time borrower. By doing this, you will be strengthening your application, making it easier for the lender or investor to reach a favorable credit decision. There are several business support groups whose members could counsel you on how your proposal looks. One source of counseling available to small businesses is the Service Corps of Retired Executives (SCORE), which is sponsored by the SBA. Other counselors might include accountants, financial advisers or more experienced entrepreneurs in your line of business.
  4. View your credit report. A borrower's credit history will provide a lender or investor with important information concerning your ability to meet your commitments. Be sure that you are aware of what is in your credit report in advance of your meeting with a prospective lender or investor. This way, you can correct any errors or prepare explanations for any anomalies before they ask you about them.
  5. Locate a lender or investor. Shopping around for a lender or investor is an important process. At your disposal are banks, credit unions, specialized commercial lenders and venture capital companies. In addition, you may want to consider lenders that participate in the SBA's 7(a) loan program or a venture capital company participating in the SBA's Small Business Investment Company (SBIC) program. If you are having difficulty securing financing, institutions participating in SBA's programs may be willing to work with you.
  6. Character counts. When evaluating your application, lenders or investors will of course look at your business proposal, your financial condition and projections, and your credit report. However, they will also pay attention to your character. As a result, be sure to present yourself and your business well--be professional, organized and confident.
  7. If you are not approved, get feedback. If your application is not approved, ask the lender or investor to provide you with the reasons why. Some of the reasons they may give for denying financing include: insufficient owner's equity in the business, a lack of established earnings record, a history of slow or past-due loan or credit card payments, or insufficient collateral. Make sure you find out the reasons why you were turned down, as this information will help you qualify the next time you apply.

After only four terms in the U.S. House of Representatives, Congresswoman Nydia M. Velázquez (D-NY) was named Ranking Democratic Member of the House Small Business Committee by her colleagues in February 1998, making her the first Hispanic woman to serve as chair or Ranking Member of a full committee in the history of the House. She has been a vocal advocate of American entrepreneurship and has established numerous small-business legislative priorities, encompassing tax regulations, access to capital, federal contracting opportunities, trade, technology, health care and pension reform, among others.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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