How to get funds for your small business

by | Nov 9, 2011 | Business

Fund is the basic requirement of any business activity. Small businesses depend on different sources for their sustenance and profitability.

Funds are needed at different stages of the business. You may need it when your business is doing well and there are good prospects for further growth. You would need additional funds for expansion. There can also be a situation where your business is unable to sustain due to rising costs or slow down in the market which may affect your revenues. This can lead to shortage of cash and might put your business under severe financial strain. Funding in such a situation is very important, be it from any source.

Getting funds for a well established small business which has strong performance history, good profitability and credit position is not too difficult. Your cordial relations with banks can be more advantageous in seeking a loan for expansion or purchase of raw materials etc. You can talk to your bankers and initiate documentation work immediately. Depending on limits specified by the bank, if your fund requirement is low, details of business plan or utilisation of fund are not required to be furnished. For larger funds, you have to submit different documents prescribed by the bankers for consideration of your loan application. Supporting document requirements vary from bank to bank.

Funding becomes more difficult when your business is not old enough and has poor credit and performance history. In such a situation, you have to look for many lenders, particularly those specialising in unsecured loans. These companies normally focus on lending to small businesses which are turned down by the traditional lenders such as banks and financial institutions. Funding by these specialised lenders is structured differently. Their rate of interest is higher than conventional business loans, but the norms for loan qualification are quite lenient.

Small business funds are available in two different forms. One form is the traditional loan, where you get lump sum amount transferred to your business account after the approval of application. The lender starts charging interest immediately after the transfer of fund. This type of funding is suitable for one time requirement of a large amount.

The second form of funding is called ‘line of credit’. This is a good option for small businesses that need small funds for ongoing requirements. Your lender provides you an account with a specific credit limit through which you can draw any amount from time to time according to your needs. Interest is charged only on the amount withdrawn by you.

Funding your small business is possible. All you need to do is identify a dependable lender who understands your needs and provides funds when you need it the most.

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