How to Financially Get Your Business Up and Running

If you’re looking to finance a new business, there are a few key elements to the process you’ll want to research through the support of your banker before jumping in. From understanding what it takes to qualify for a loan to understanding the importance of your credit history and determining the best loan terms. Here’s how.

Credit Matters

When considering borrowing money from a financial institution, a small business owner should also pay attention to their own personal credit history/score. The thought behind a small business is that the owners are their companies and vice versa. That is why their personal credit is so important.

Financing Options

Banks offer several financing options to small businesses. A small business can contact a bank by visiting a location or by calling. They can ask to speak to a lender or someone regarding financing options for their small business. Once in a meeting, the lender will assist and advise the business owner with determining the loan type that would work best for their business needs and provide the customer a list of financial information that is required, as well as term options and loan requirements—such as down payments, length of maturity, rates, and other financing requirements.

Once the lender and borrower determine the type of loan that is needed and the borrower provides all the financial information that is required, the underwriting process begins. The underwriting process is to determine the borrower’s ability to repay debt (primary source of repayment) and ability to secure debt (secondary source of repayment).  Most small business loans also require the owner to guaranty the loan (third source of repayment) which requires the review of the owner’s personal financial information as a part of the underwriting process. The initial conversation with your financial institution is key in understanding needs, whether you’re purchasing a business, buying out a partner, or starting from scratch.

Term Loans

A term loan is typically used for the financing needs of a business with a predetermined repayment schedule over a period of time based on a fixed or variable rate. It is normally used for the purchase of fixed assets, such as equipment and other business assets that require long-term financing. A line of credit is used for short-term financing needs. Businesses normally use lines of credit for working capital needs.

SBA Loans

An SBA (Small Business Administration) loan is often an attractive option for small business owners. An SBA loan can offer more favorable terms options for businesses, such as longer amortization, lower down payments, and lower rates.

Trusted Advisors for Your Business Can Help

While it’s important to find the right funding for your business, it’s also crucial to have the right support system around you to offer wisdom and advice when needed. A trusted advisor can help talk through operational costs, lifestyle changes, and experience needed for even starting a business.

Operational costs could include shipping expenses and inventory costs, while lifestyle changes may have a business owner thinking, “How much money do I need to devote to this business, and how will that affect my current way of living?”. Business owners need to do their research.

A CPA, attorney, and banker are great people to start with for advice on getting a business started and to assist with the continuation of doing business. Anyone with experience in your business can be a great advisor, as well. Most communities also have economic development groups and a local chamber of commerce that can be of good use. Don’t count them out.

To learn more about the right financing for your business, head to PlainsCapital Bank’s “Loans and Financing Solutions for Businesses at All Stages” page, or contact a local branch near you.