What Is Business Financing? The Complete Guide for SMBs

Benefits of Business Financing

As important as your cash flow is, it usually won’t be enough to cover everything; you may need more money to solve existing challenges and take advantage of sudden opportunities. That’s where business financing comes in, but it also brings with it many additional benefits, such as:

• Improved cash flow: Financing can help you even out revenue and bridge funding gaps.
• Growth and expansion: Most businesses need financing to help open new locations, acquire other businesses, and scale.
• Increased competitiveness: With the right financing, you can take advantage of opportunities, get new equipment, and otherwise better position yourself.
• Reduced risk: If you have access to financing, it’s less likely that a single bad quarter or setback will cause you to fail.
• More credibility: If a financial institution has deemed you worthy of receiving a substantial loan, that sends a powerful signal of creditworthiness.
• Access to expertise: Certain business financing options include experts who will help you run various aspects of your company.
• Tax benefits: Depending on the specific loans, there can be tax benefits like deductions that’ll make your business stronger.

There are many business financing products, including ones built for specific purposes (like equipment financing) and some with more general uses (like term loans.) Borrowers can tailor their approach to business financing to suit their unique needs, thus maximizing the benefits of every additional dollar. With that in mind, let’s now turn to some avenues available for those seeking business financing.

How To Obtain Business Financing

Many subtleties are involved in applying for business financing, but the basic procedure is the same whether you work with a bank, credit union, or non-bank lender. In general, these are the steps you’ll need to take:

1. Make a list of lenders
2. Review the qualifications they look for
3. Select the most promising lenders
4. Apply to them
5. Review the approvals
6. Negotiate terms
7. Finalize a contract
8. Receive funding

Let’s flesh this out a bit. As indicated, the first step is to identify institutions that are willing to extend business financing. The standard options are banks and credit unions, of course, but you should also extend your search to include non-bank entities, such as private lenders. Each will have different loan qualifications, and it’s worth casting a wide net at this stage because you may meet one set of standards and not another. With that done, you need to apply to each lender, select the approvals that offer the best terms, use your position to negotiate even better terms (if that’s possible), and then finalize everything to receive funding.  Of the institutions that offer business financing, banks, and credit unions tend to have the strictest requirements and the most rigorous application processes. It’s not uncommon to wait weeks or even months for business financing to come through when going this route. For their part, private lenders are usually quicker and more flexible, with business financing being approved in as little as 24 hours in some cases.  

Importance of Business Financing

Business lending fuels growth in all industries. It allows startups to build their foundation while forming their revenue streams and established businesses to scale operations to stay competitive. Without it, businesses would need to wait for their profit to cover the costs of growth. Here are a few of the many reasons that business financing is essential to U.S. commerce.

• Provides funding to start, expand, and scale operations
• Allows businesses to set plans into motion immediately
• Offers instant liquidity to streamline cash flow
• Helps support operations when experiencing a slowdown
• Creates a liquidity buffer as entrepreneurs finely tune their expenses to cover costs

Find the Best Business Financing Options With National Business Capital

If you’re wondering what type of business financing is best for you, you should work with National Business Capital, a private credit lender with a world-class advisory team, where you can compare personalized offers with expert guidance from a business advisor. Learn more about business financing from National Business Capital by completing our application.