About Lesson
“5 Critical Questions Before Seeking Financing
These next questions deepen your financing strategy, ensuring readiness for the application process. As we explore these in the course, you’ll gain insights into choosing the right financing, understanding your business’s financial health, and planning for repayment. This section helps you make informed decisions tailored to your business goals.”
1. How quickly do I plan to pay it back?
Small business financing is often categorized as short term (usually less than 24 months), medium term (often 2-5 years) and long-term (5 years+). While short-term loans may carry higher interest rates, longer term loans may cost more in the long run because the repayment period is longer.
2. Do I need collateral?
Some lenders prefer to make loans secured by real estate, equipment or other assets such as outstanding invoices. When you pledge collateral, the lender will use a “UCC filing” to protect its interest in your property. UCC filings appear on business credit reports and, in some cases, multiple UCC filings may affect your ability to get financing.
3. What is the impact of a personal guarantee?
If you sign a personal guarantee, the lender can try to collect from your personal income or assets if the business doesn’t repay the debt. Lenders often prefer personal guarantees. The stronger the qualifications of your business (time in business, revenues and/or business credit scores), the sooner you can move away from them.
4. What’s my industry?
Lenders may place restrictions on the types of businesses they will fund. Standard Industrial Classification (SIC) codes and the newer North American Industry Classification System (NAICS) codes are used by the government to categorize businesses by industry. These codes typically appear on business credit reports and may be used by lenders to identify the types of businesses they will or will not lend to. It’s not uncommon for the wrong code to be listed so check your business credit reports to make sure your SIC or NAICS code is correct.
5. Am I ready to apply?
Businesses often fail to qualify because they fail to complete the application process. Gathering the information you need to apply ahead of time will save you time — and quite often, money.