Am I Lendable? How to Get Funding for Your Business

When you are in the early stages of business growth, it can sometimes be challenging to obtain capital – especially through traditional avenues. But there are steps you can proactively take to make it easier to get the capital you need to grow your business. If you’re a new business that is just starting out, this blog will help you get your business finance started on the right path to becoming lendable. And if you’ve been established and operating your business for a few months, find out how you can ensure that your business finances are on track to help you become lendable.

First, we’ll look at the most common requirements you need to meet before being eligible to receive funding, then we’ll look into a few funding pathways you can pursue to get the right capital for your business.

Common Requirements to Get Funding for Your Business

Before you can start looking for funding options for your business, you must ensure that it meets all your basic funding requirements. These requirements may vary based on the type of funding you’re looking for, but a few common prerequisites apply to most businesses. These include having an EIN, registering your business, having a business-related bank account, your time in business, your monthly revenue, and a good credit score.

1. Having an EIN

An EIN, or Employer Identification Number, is the number the IRS uses for federal tax identification purposes. It’s essentially a Social Security Number for your business and can significantly impact your ability to get funding. Your EIN is the number you use when applying for business loans and lines of credit, so it’s also the number associated with any credit your business builds and therefore has its own credit score.

In addition to using the number for tax identification purposes and funding opportunities, you also need an EIN to establish tax records if you want to hire employees, open a business bank account, and apply for local permits and licenses.

You can register for an EIN on irs.gov using the small business EIN online application form.

2. Registering Your Business 

In addition to having an EIN, you must register your business with the appropriate government entities. To do this, first, you’ll need to determine your business structure and choose an appropriate location for your business. Even if you don’t have a physical location, register your business name as an LLC or under a DBA (Doing Business As), then follow through with the IRS and government entities.

Typically, choosing your business structure can be one of the trickier parts of registering your business because there are so many options available. Fortunately, despite the plethora of options, there are a specific few structures that are the most common and may apply to your situation best. These include sole proprietorship, partnership, limited liability corporation, and c-corp.

Sole Proprietorship

A Sole Proprietorship is the most basic, default business structure a company can have. In it, both your business and personal assets and liabilities are combined into a single unit and can be affected by legal actions taken against either.

Partnership

When two or more people own a business together, they are considered a partnership. In a Limited Partnership (LP), one partner, the General Partner, has personal liability. In contrast, any other partners are Limited Liability Partners and have their personal assets protected from any debt the business accrues.

Limited Liability Corporation

In a Limited Liability Corporation (LLC), the business owner can protect their assets from being affected by any business-related liabilities. Typically, an LLC’s profits and losses are taxed as its members' personal income or losses.

C-Corp

In a C-Corp, the business is entirely separate from any owners or shareholders. It offers the most protection to the owner’s assets because the business can only be taxed, makes profit, and be held liable for any actions or debt as a business, not taking any personal holdings into account.

3. Having a Business Bank Account 

Having a business-specific bank account is a great way to keep your business transactions separate from your personal accounts and, in turn, help you qualify for more business funding in the future. Additionally, a business bank account allows you to track your revenue, profits, and expenses easily. This helps you manage your accounts better, protects you in case of audits or lawsuits, and to better legitimizes your business, and helps you appear more professional.

4. Time in Business 

Most lenders require you to have been in business for a significant amount of time to prove your validity before granting you funding options. Traditionally, this period is at least six months long but can extend even longer than that, depending on your lender’s requirements. However, if your business is younger than six months, you may still have financing options, but the market will be more limited.

5. Monthly Revenue 

Similar to the time in business requirements, many lenders also have a monthly recurring revenue (MRR) requirement before they give funding to small businesses. Typically, the minimum requirement is at least $4,000, but, like the time limit, some lenders may require more than this minimum limitation before agreeing to fund your company.

6. Good Credit 

Having good credit–both for your personal and business finances–is essential to getting business funding. Good credit can determine whether or not you qualify for a loan and what loan terms you are eligible for, and it can even help you get term discounts based on how good your credit is. 

But it may be very beneficial to separate your personal and business expenses so that a lesser credit score on one is not affected by the score on the other. Remember that some lenders may require a personal guarantee or credit check to approve your business loan.

Types of Business Funding 

Once you’ve got all your standard loan requirements squared away, your chances of getting your business funded exponentially increase. You can choose several funding options, including crowdfunding, grants, business cards, and loans.

Crowdfunding 

Crowdfunding is a popular option among first-time business owners. It involves using small amounts of capital from a large pool of individuals to finance a new business. It relies heavily on networking through social media and crowdfunding websites to get the word out

Mainvest is one such investment marketplace that links entrepreneurs with potential investors, giving business owners the chance to gain capital from investors in their communities while simultaneously giving retail investors access to new investment opportunities.

Other ways you can access crowdfunding capital can be found here.

Grants

Grants come in many different forms but typically constitute a financial award given to an individual or company by another company, foundation, or government entity. They usually don’t have to be repaid and are essentially free rewards to recipients that can help you grow your business until you become lendable. 

Unfortunately, it can be hard to find business grants sometimes, but that’s why we started our Grants for Growth newsletter –to make it easier to connect businesses with grant opportunities.

Business Cards

Establishing your business credit early can help you secure more funding in larger amounts. Business charge and credit cards are similar but different financing options for small businesses. 

Business charge cards work like traditional credit cards in that they let you make purchases with money you borrow from a lender, but unlike credit cards, they let you carry your balance from month to month rather than having to pay it all off every thirty days. Instead, you must pay it off at the end of every cycle and can avoid hefty interest rates most of the time.

Business credit cards are credit cards that are intended for use by businesses rather than by individuals for their personal use. They benefit small business owners, particularly to help keep business and personal expenses separate for tax reasons. Additionally, they may come with special perks for your business.

You can learn more about business charges and credit cards here.

Loans

Business loans typically have more requirements than other financing options and can be much harder to obtain. We’ve already covered several of those requirements above, including EINs, registration, business bank accounts, a minimum monthly recurring revenue (MRR), and a healthy credit score. So let’s take a closer look here at a few of the different loan types you may be eligible for.

Receivables Purchase

Receivables purchase financing is a structured type of loan agreement where a small business can receive funding related to a portion of its accounts receivable, which are assets that are equal to the outstanding balances of invoices that have been billed to customers but haven’t been paid for yet.

Line of Credit

A line of credit is a funding option where an individual can borrow money when needed by writing checks or using a bank card to make purchases. Typically, these lines of credit will have preset borrowing limits, and they can be taken out from a wide variety of banks and credit unions.

Term Loan

A term loan is a specific loan type wherein individuals are given a lump sum of cash upfront by a lender under very specific terms. Typically, a fixed amount is set to be repaid over a certain repayment schedule, and it can have either a fixed or a floating interest rate depending on the terms agreed upon by the borrower and lender.

Invoice Factoring

Invoice factoring is a funding type that can be lent by either banks, unions, or independent finance providers. It works by allowing businesses to fund their cash flow and revenue stability by selling off their invoices to a third party at a discount.

Equipment Financing

Equipment financing is a loan option that relies on purchasing business-related equipment because the loan type only finances business-related equipment like restaurant ovens, copy machines, and vehicles. This loan type must be repaid in periodic payments that include interest over a fixed period of time as determined by your lender.

Start Your Growth Journey 

Now that you know what it takes to become lendable, start your journey to successful business financing today with Fundid and browse our other resources that are designed to promote your business growth.