Getting a small business loan: Being informed beats a great story any day!

 Dorchester Bay

darrell byersBy Johnny Charles
Director of Economic Development
Dorchester Bay Economic Development Corporation

How do I get funded? is often the leading question from small business owners after learning what I do for a living. As Director of Economic Development at Dorchester Bay, I manage a loan fund that deploys loans to small businesses.

Before I get the chance explain how to get funded, a business owner immediately follows their question with a story that details their company’s competitive advantages: industry knowledge, applicable specializations, a recent opportunity, their drive to work harder than most, etc.. These are strong attributes, but don’t answer the business owner’s initial question.

To get funded, relevant, measurable data around your business performance is essential, like profitability plans, liquidity measures, and operational efficiency. Combined, these details tell a realistic story about your business — and most importantly, the growth trends (or the lack thereof).

In addition, lenders want to know how you realistically plan to grow: not just how many units you are predicting to produce over a specific time period, but also the specific milestones, action steps, and the team needed to execute.

By presenting a growth plan that includes details of business performance, with realistic growth goals, you are one step closer to getting funded. But first, you need to understand what financing vehicles are available and best suited to power your company’s growth plan.

Financing vehicles, also known as capital financing, can take on many different shapes but the most common are equity, debt, receivables, and the ever-growing model of crowd funding.

  • Equity financing, although sometimes mischaracterized as debt can be defined as the selling of your companies assets in return for cash.
  • Debt financing, which should not be confused with equity, is a loan that is repaid in a timely manner (most common; monthly payments) with a promise to pay principle and interest by the maturity date, also known as the term.
  • Receivable financing best known as Accounts Receivable financing which is an agreed upon asset financing where receivables (outstanding money or invoices are owed to the company by the vender/customer) are pledged in exchange for money by a creditor. This arrangement is contingent on a number of factors involving specific vendor/customer contract details.
  • Finally, crowdfunding is the practice of raising money online from individual donors often in small quantities for the purpose of investing in a business or a temporary cause.

A growth plan, the understanding of each financing model, and a strong relationship with a lender — that's the winning strategy to secure financing. Provided that a business owner can articulate their business strategy by the numbers, in addition to knowing which financing tool is best for your company, will almost guarantee that your story is heard.

Now, how do you plan to get funded?