Business financing refers to the money needed to start your business, run your business, and grow your business. Cash infusions are critical from time to time and almost every business will rely on financing at some point.
Business financing can take many forms. For example, term loans, lines of credit, Small Business Administration (SBA) loans, and more are all types of business financing. Business financing can be put to a large variety of purposes, but the end goal is always the same – to help your business thrive.
Business financing can also relate to the way your business manages its cash. It doesn’t matter how high your revenue is – if you’re properly tracking expenses or keeping enough capital on hand for a rainy day, you could find yourself in a precarious situation.
We’re breaking down how to understand business financing as well as the different ways to use business financing to your advantage.
Understanding Business Financing: The Basics
Business financial statements provide a synopsis of your business’s finances and overall health. They’re a great starting point to understanding your business’s weak points and where additional financing may be needed. Plus, almost every lender will ask to review your financial statements before approving you for a business loan. So it’s best to be prepared ahead of time.
The three most important business financial statements are your balance sheet, income statement, and cash flow statement.
Balance sheets
Your balance sheet displays your company’s assets, liabilities, and equity. Balance sheets help convey your business’s financial strength. Companies with strong balance sheets are more likely to be able to weather unexpected disruptions to cash flow. Many lenders also view companies with more assets over liabilities as safer, and tend to offer lower interest rates and better terms to these borrowers.
Income statements
Income statements, also known as profit and loss statements, summarize your business’s income for a set period of time – taking into account your expenses and profit. Income statements convey your company’s profitability and potential for long-term survival.
Cash flow statements
Finally, cash flow statements describe your cash inflows and cash outflows. It helps portray a picture of how well your business generates cash as well as the amount of time it takes to receive cash after spending cash. Ideally, you want your businesses to constantly have a set minimum of cash deposits at all times to be able to meet operating expenses.
Keys to Managing Business Financing
Managing business financing means optimizing the way your business handles cash. Here are some important factors to look into when considering business financing.
Operational expenses
At the very least, your business must meet all its operation expenses to stay afloat. This means having enough cash on hand to pay your employees, purchase raw materials or inventory, cover your bills, and so on. You want to ensure you have enough cash coming in to cover these expenses and then some.
Risk management
Just like you want to have enough cash to meet all of your day-to-day expenses, it’s also important to have access to extra capital in case of an emergency. This can be in the form of a cash reserve, savings account, or business line of credit.
Long term goals
The old cliche, you need money to make money, holds true. Whether you’re launching a business for the first time or planning to expand, you’re going to need cash. Make sure to also take the time to consider how your ongoing expenses will impact your plans for growth.
How to Use Business Financing
Cash infusions can help keep your business running while simultaneously allowing you to reach new heights. Additional business financing is critical during the startup phase as well as new expansionary periods. Many businesses also turn to business financing resources to help them resolve day-to-day cash flow disruptions, such as those resulting from delayed invoices, unanticipated expenses, or general economic downturns – like the Covid-19 pandemic.
Here are some ways to use business financing:
- Managing day to day expenses, such as inventory purchases, rent, utilities, employee salaries, and more
- Hiring new employees
- Debt refinancing
- A source of temporary cash flow relief – especially if your business was hit with an unanticipated expense or several late invoices
- Growth projects, such as opening a new location, marketing campaigns, purchasing raw materials, testing products, researching new markets, and more
- Purchasing land or real estate
- Purchasing machinery or equipment
- An emergency fund – especially in the case of a line of credit, which can be withdrawn at any time to cover ongoing expenses
How to Obtain Business Financing
As a business owner, you have several options for obtaining business financing. You can choose to work with traditional lenders, such as banks or credit unions. Or you can choose to work with online lenders or fintech lenders.
In general, it tends to be more difficult to secure business financing with banks and credit unions. These institutions maintain strict requirements and are also notorious for long, rigorous application processes. It’s not uncommon for businesses to have to wait weeks or even months for cash to come in from a bank or credit union.
Online lenders and fintech lenders tend to be more flexible and work incredibly fast at processing funds. In some cases, it’s possible to secure business financing in as little as 24 hours from an online lender.
If you’re wondering what type of business financing is best for you, make sure to work with National Business Capital. National Business Capital is a fintech marketplace where you can compare personalized offers from over 75 different lenders.
National also gives you the added bonus of working directly with a Business Financing Advisor – a professional who’s dedicated to walking you through the process and helping you find the best business financing solutions for your needs. Learn more about business financing from National here.