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How to Finance Your Business Growth

Key Takeaways

  • A line of credit could solve short-term financing needs, while term loans can be for longer-term needs.
  • Traditional loans may offer lower interest rates and shorter approval times; SBA loans may allow higher borrowing limits, longer terms, and lower down payments.
  • Start your search for financing as early as possible so you can consider more options.

Financing can be a powerful springboard to growth, enabling your business to make investments that expand operations and bring in new customers. However, before you pursue financing, it’s critical to understand your options and the key steps that can help position your business for success.

Ask yourself these questions to get started.

Types of business financing: which is best for me?

Timing is everything and the right choice depends on your short- and long-term needs. For example, if you are considering technology or equipment that will benefit your business for years to come, a loan you pay off over several years could be the right choice. If you need to boost your working capital in the short term, a line of credit that allows you to tap funds as needed may be the right tool. Compared with credit cards, lines of credit typically carry lower interest rates and higher spending limits. Learn more about which financing tools are best in specific circumstances.

Conventional bank loan or SBA loan: which will best grow my business?

Traditional loans may offer lower interest rates and shorter approval times, but they can be more difficult to qualify for than Small Business Administration (SBA) loans. As an alternative, SBA loans may allow businesses to borrow more than they could with a conventional loan; they tend to offer longer terms and lower down payments, too.

What other types of loans are available?

Some financial institutions offer loans that act as a line of credit for a set period of time, typically 6 to 12 months. During that time, you can withdraw funds to make purchases while paying only the interest on what you borrow. Then, after the 6 to 12 months are over, the loan converts to a fixed-rate term loan on which you pay the principal and interest. These are sometimes referred to as flex loans.

If you use less than the amount you are approved for, you only repay that amount.

How far in advance should I seek financing?

Start the search as early as possible – when your needs aren’t urgent, you may have time to consider more funding options. If you’re considering a major purchase, start exploring options with your banker. If your business is seasonal and you need funding to get through the slower months, speak with your banker well in advance of the slowdown. Advance planning and proper communication with your bank can be key to securing the best type of financing when you need it.

What steps should I take before pursuing financing to grow my business?

Clarify your needs and objectives before you seek financing since banks will want to see that you have a clear purpose for the funds. From there, you’ll want to lay the groundwork for making you and your business appealing to prospective lenders. This includes preparing financial documents that show you can comfortably repay the financing, as well as ensuring your personal and business credit ratings are healthy.

More information

We are committed to helping your business reach its potential. Our dedicated business banking professionals can help you find the right product to meet your business’ needs. To learn more about how to grow your business, please call 1-800-428-7463, visit us online, or visit your nearest Citizens Bank branch.

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