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How to determine your business financing needs and pick the best option

Not sure if your business needs a loan? Use this guide to find out.

Most businesses could do better with extra money. But figuring how and when it’s a good idea to seek financing is another matter. Understanding your financial needs is the first step toward narrowing down your financing options — or whether you need financing at all. We guide you through the preliminary steps to steer your business to the right path.

Five questions to determine your business’s financial needs

To decide whether your business needs outside financing, ask:

  1. Is my business doing well?Although it sounds counter-intuitive, It’s generally a bad idea to look into financing — especially loans — if your business is struggling. Not only will you not qualify for many financing options, but you also risk getting caught up in a cycle of debt if you can’t repay the loan.
  2. Are some seasons more profitable than others?Among the few times financing could be a good option for a struggling business is when it suffers seasonal losses. Access to extra funds can keep you afloat in the off-season until sales pick up and you’re able repay it more easily.
  3. Do I need to build my credit?Consider taking out a small loan you’re certain you can repay. By building upyour business’s credit score, you’ll get better rates on future loans.
  4. Am I ready to expand?Business financing can be that extra push to making your business more profitable in the long run. Butmake sure you’re ready for that kind of growth.
  5. Can I afford to buy all the equipment I need to run my business?If a lack of equipment is holding you back, it might be worth it tolook into business equipment financing.

How to choose your best financing option

The financial state of your business will largely determine your financing options. To avoid losing yet more money, struggling businesses should generally avoid financing options until they’re back on their feet. If your business is growing and you want to put more fuel in the fire to grow even faster, a business loan is a good option.

In addition, how seasonal your business is and the industry it’s in will impact which financing option you choose. For example, seasonal businesses might want tolook into opening a line of creditfor access to cash that covers day-to-day expenses when profits aren’t enough. And businesses in theagriculturaland manufacturing sector could benefit from equipment loans to directly affect their profits.

Compare top business loan options

Name Product Filter Values Loan amount APR Requirements
Fora Financial business loans
Finder Rating: 4.1 / 5: ★★★★★
Fora Financial business loans
$5,000 – $500,000
Varies
6+ months in business, $12,000+ monthly revenue, no open bankruptcies
Get qualified for funding in minutes for up to $500,000 without affecting your credit score. Best for companies with at least six figures in annual revenue.
Lendio business loans
Finder Rating: 4.75 / 5: ★★★★★
Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.
National Funding business loans
Finder Rating: 4.75 / 5: ★★★★★
National Funding business loans
$5,000 – $500,000
4% to 8%
Be in business at least one year and make at least $150,000 in annual sales. Other loan types have additional requirements.
Working capital loans and equipment financing, some high-risk industries may be eligible.
Fundbox lines of credit
Finder Rating: 4.2 / 5: ★★★★★
Fundbox lines of credit
$1,000 – $150,000
Not stated
6 + months in business, $100,000+ in annual revenue, 600+ credit score
Get flat rate, short-term financing based on the financial health of your business, not your credit score.
Bitty Advance business cash advances
Finder Rating: 2.8 / 5: ★★★★★
Bitty Advance business cash advances
$2,000 – $25,000
Not applicable
$5,000 monthly bank revenue, 6+ months in business, business bank account open 3+ months, 450+ credit score
With APRs in the triple digits, this is best saved as a last resort.
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Compare up to 4 providers

Case study: Michael gets a line of credit for his pizza shop

Imagine this scenario: Michael opened a pizzeria next to a high school. He made more money than he could’ve ever imagined — that is, until summer arrived.

All set to go to the bank for a loan to cover overhead costs for the summer, Michael wanted to make sure it was the right choice for his business. After researching small business financing, he learned that a line of credit could be better for his pizzeria. With a business line of credit, he’d only take out what he needs, when he needs it — allowing him to better manage his debt.

Only needing $5,000 at the time, he took out a $10,000 line of credit withLendingClubto be safe. The line of credit came with an 8% interest rate, and Michael paid what he borrowed within the first few months of the school year as business picked up again.

Bottom line:Understanding your business’s needs is the first step to making a smart financing decision. You won’t be ready to compare your options if you aren’t able to narrow down the type of financing you’re looking for and why you need it.

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