Financing 101 

How does one get financing? How much money does one ask for? What is the likelihood that one will get financing? These are all great questions and there is no cookie cutter answer to any of them.

Let me start off by saying that in order to acquire financing it is usually better to get it when you don’t need it, rather than waiting until it is an absolute necessity for the survival of your business. This can be accomplished by getting a business line of credit. Many banks will offer business lines of credit to businesses based on the amount of time that the business has been established, profitability, inventory, cash flow, and numerous other factors that may vary from lender to lender. Banks will usually charge a relatively small fee annually to maintain the credit line but will not charge you for the line until you start to draw down on the funds. (Please keep in mind that all lenders are governed by their own rules and regulations and you should check with your specific lender for all potential cost and fees).   

Ok, how may one get financing? The first thing that I suggest that you do is to create a business plan. All lending institutions do not require you to have a business plan in order to get financing, but it is better to be prepared with it so that if they do ask for it you have it ready. The business plan should reflect the amount of money that you will need, otherwise known as “startup capital.” Although it is important to plan for contingencies, it is more important to be as accurate as possible with the financial request.          

Business owners should be aware of what their FICO (otherwise known as credit) score is like when going for a loan. This will determine which institution we will focus on while trying to assist you with the loan.  The higher your Fico score, the better your credit. The numbers can range from about 300, on the low end, to 850, on the high end.  Traditional lenders (banks) usually do not lend to applicants with a credit score below 680 (not without a valid explanation). 

Alternative lenders are willing to lend to individuals with a credit score below 650 but they must have a very sound business plan (including financial projections) and usually need a cosigner.  Please note that some alternative lenders usually lend at a higher interest rate as well.   

Please keep in mind that when you are inquiring about which lender is suitable for you and your business need, it is better for the institution to NOT run your credit until you are certain that they have the most suitable product for you. When searching for credit, having the lenders check your credit score too many times will negatively impact your score. It may benefit you to have a recent copy of your credit score/report to take with you when meeting with lenders. They will eventually have to run your credit themselves to verify that the information is still accurate but they should be able to give you a ball park estimation based on the information that you present to them.

It isn’t possible for me to answer all the questions that one may have regarding the intricacies of getting financing especially in the current environment. However, I hope that I have provided enough information to get you comfortable with the process. Please feel free to contact your local NYC Business Solutions Center to get assistance with obtaining financing or to answers to any other questions that you may have. 

Paul Smith is the Center Director of NYC Business Solutions, Bronx.  If you have comments or questions for him, please drop him a note in the comment section below!