5 Crucial Things to Consider when Searching for a Financing Solution for Your Business

However passionate you are about your industry, and however driven by immaterial rewards in life you might be, there is no denying that money will dictate your company’s present, as well as its future. For better or worse, money makes the business world go ‘round, and you need to run a tight financial ship if you hope to establish long-term financial independence and pave the road to lifelong affluence.

Without a doubt, the most important problem you need to deal with early on is the problem of actually financing your business until it becomes profitable and you generate the desired ROI. There are many financing options out there, and you will need to weight the pros against the cons for each one in order to find the ideal financing solution for your business. Here’s what you need to keep in mind.

The risks associated with the financing option

Every action in the business world has a consequence, a reaction. This means that there is no such thing as a “safe zone” where there are no consequences for your decisions, and finance is no different. There will always be a certain risk to every financing option you choose – your job will be to discover these threats and chose a financing solution you’re (fairly) certain you’ll be able to capitalize on in the long run.

For example, borrowing money from family and/or friends might seem like a great idea, but what happens if their investment falls through and your company goes under? You’ll invariably ruin your relationships, and there might even be some legal action against you. The same goes for company stakeholders and investors. These people are looking to get something in return for their capital investment, usually in the form of asset control or a key stake in your company. Be careful when choosing your financing solution and do your best to research each one well in advance.

The costs of financing your business a certain way

How much will this financing solution cost you and your company in the long run. Unless you’ve obtained a decent loan from a reputable lender, the amount you’ll have to give back to your investors and stakeholders could be way more than you’re prepared, or willing, to part with. Every financing option has its cost, and you need to know exactly how it will impact your cash flow and your long-term solvency.

Be sure to read the contract carefully, and pay special attention to the part where you have to pay back the loan, or start returning the investment with interest to stakeholders. Usually, stakeholders will try to strip you of any capital you make very early on in order to capitalize quickly, leaving you with financial scraps to get by. This is why you need to retain control of your finances at all costs.

Staying in control of the finances and your company

Too many entrepreneurs and business leaders lose control of their own company, as well as their company’s finances. You cannot allow this to happen, no matter if you’re just starting out, or if you’re having financial difficulties and are looking for refinancing solutions to get your business back on track. The best way to retain control of your business and your finances has always been, and always will be to take out a business loan.

Reputable lenders don’t want a stake in your company, they just want their loan back with interest. So no matter if you’re looking for an investment capital loan or if you’re in need of debt consolidation to pay off outstanding loans and get your business up and running again, your best bet is to avoid investors and any other party that might want a stake in the matter, and stick with the simplest and most efficient of financing methods. Remember, keep it simple, and read the terms.

Choosing a long-term or a short-term funding option

Another important factor you need to consider is the duration of the financing option, be it a loan or an investment. Ideally, you’d want to launch your business, repay what you owe, and erase the task from your to-do list as soon as possible. However, sometimes obtaining finances for the long term is not only necessary, but preferred. You’ll want to match the source to the asset you want to procure.

So for example, if you’re launching a business, then a long-term loan you can pay off over several years would be best. On the other hand, if you need to procure a more flexible asset that you can pay off quickly, then it’s better to choose a short-term source of finance instead.

The potential for future financial savings

And finally, assess whether or not this financing option will give you the ability to reallocate funds towards a financial safety net. After all, you don’t want to find yourself in need to borrow money ever again, and to achieve this goal of financial stability, you will need to have an emergency fund for those rainy days. Work closely with your financial advisors in order to determine if a financing solution can be used to build a strong financial safety net in an efficient and effective way.

In closing

Financing a new or an existing business venture is a cumbersome task that requires plenty of planning, research, and careful execution. Don’t fall prey to those financiers that want to use you for personal gain, but rather follow these steps in order to find the ideal financing solution for your long-term business goals.