Make Your Business More Attractive to Investors and Banks

Tips for Making Your Small Business a Great Financing Candidate

All business owners dream of expanding their business in some way – taking on more clients, moving to a larger space, or possibly opening a second location. Even if a small business is profitable, chances are very few business owners have the funds to finance an expansion on their own. In many cases, business owners turn to investors and bank loans in order to afford capturing their dreams of expanding. In order to ensure financers are interested in your business, there are a few key tips you can follow.

Be Consistent with Small Business Financials

In the eyes of banks and investors, your business looks as good as your accounting records. Because of this, it is very important to make sure you hold yourself and your employees responsible when it comes to fiscal accountability. Communicating the business’s financial history is a huge part of being an attractive investment – the best business models, best profit margins, and beating out the competition simply do not compare to the consistency of your accounting when looking for financing.

Properly Manage Debt Financing

It is also important to make sure the business’s short-term and long-term costs work well with its current financing structure. Many businesses find themselves bearing a heavier load than they can handle in terms of debt financing. When you fund your business with credit card balances and merchant cash advances (MCA), it can leave you in danger of having to deal with unmanageable Annualized Percentage Rates (APR) and other fees. Habits like these also reflect badly on loan applications.

Make Sure You Break Even

Another attribute that makes small businesses more appealing to investors and bank lenders is having strong cash flow. It is important, both to secure financing and for the business as a whole, to make sure the business’s current income can support the level of costs it must incur in order to operate effectively. Even if you are approved for financing, taking on a large expansion when the business is struggling to handle its current expenses can be tricky and even lead to the failure of the company all together.

Tax Honesty is Important

Being honest on taxes is a good practice to keep, regardless if you are looking for additional business financing or not. In the long-run, being up front about the business’s financial situation and filling out tax forms properly and on time will reflect well when it is time to expand. Many lenders have seen business owners over-report expenses while also under-reporting their revenue – dishonesty in this form does not sit well with investors and can mean the difference between being approved or being denied.

Be Up Front with Business Objectives

Many lenders and investors will ask small business owners why they are looking for financing and will often require a set of business objectives in order to justify making the financial investments. It is important to be clear about what your objectives are and be able to describe them in detail to the lender. When thinking of how to present business objectives, consider these questions – What is the financing going to be used for? What is the return on investment for the business? What are the internal and external roadblocks that pose the biggest risk to the expansion, project or business as a whole?

Want to learn more about running a successful small or home business? Check out Stacy O'Quinn's personal blog! Stacy has worked with some of the best mentors in the business and in addition to running his own six figure home business, he now teaches others how to do the same! To learn more, click here.

*Photo Courtesy of 401(K) 2012 via Creative Commons License