4 tips to find the financing that’s right for your business • Zoo House News

4 tips to find the financing that’s right for your business • Zoo House News

Carlos Antequera Contributor

The facts are clear: startups are finding it increasingly difficult to secure funding, and even unicorns seem cornered, many lacking both capital and a clear exit.

But equity rounds aren’t the only way for a company to raise money — alternative and other non-dilutive financing options are often overlooked. Taking on debt could be the right solution if you are focused on growth and can see a clear ROI on the capital employed.

Not all financiers are the same, so the search for financing is not just about raising capital. It’s all about finding the right funding source that fits both your business and your roadmap.

Here are four things to keep in mind:

Does this suit my needs?

It’s easy to accept, but securing funding starts with a business plan. Don’t seek funding until you have a clear plan of how you’re going to use it. For example, do you need capital to finance your growth or for your day-to-day business? The answer should affect not only the amount of capital you’re looking for, but also the type of funding partner you’re looking for.

Start with a concrete plan and make sure it aligns with the structure of your funding:

Match the repayment terms to your expected use of the debt. Balance working capital needs with growth capital needs. It’s understandable to hope for a one-off funding process that puts the next round far behind, but that can be more expensive in the long run than you think.

Your repayment period must be long enough for you to use the capital and see the return. If not, you may end up making loan payments with the principal.

Let’s say you secure funding to enter a new market. You plan to expand your sales team to support the move and develop the cash flow needed to pay off the loan. The problem here is that it will take months for new hires to ramp up.

If there isn’t enough delta between the start of the ramp-up and the start of the repayment, pay off the loan before your new seller can generate any revenue so you can see the ROI on the amount you borrowed.

Another point to keep in mind is that if you’re funding operations rather than growth, the need for working capital can reduce the amount you can invest.

Let’s say you fund your ad spend and plan to spend $200,000 over the next four months. But payments on the MCA loan you secured to fund those expenses will hurt your earnings, and the loan is further limited by a minimum cash requirement of $100,000. The result? You’ve secured $200,000 in funding, but can only deploy half of it.

With $100,000 of your funding remaining in a cash account, only half of the loan goes to operations, meaning you likely won’t meet your growth goal. What’s worse, since you can only deploy half of the loan, your capital cost is effectively twice what you planned.

Is this the right amount for me now?

The second consideration is balancing how much capital you need to meet your short-term goals versus what you can reasonably expect to secure. If the amount of funding you can get isn’t enough to move the needle, it may not be worth the effort required.

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