Getting your business loan-ready is a process that takes time. But with careful planning and execution, you can get positioned to take advantage of the best opportunities available to you. At CFNMD, we’ve identified three milestones along the loan funding journey:
Self-Funding:
Your business runs on your own sweat equity, plus the funds you invested during startup or those that you reinvest into its operations. During this stage, good cash flow management, budgeting and rerecord-keepingcord keeping are essential. You’ll also need to document your accomplishments and the efficiencies of your operations. This will establish trustworthiness and lay the foundation for the next stages of funding, should you need them.
CDFI-Ready:
If you have an established business or a start-up with a proof of concept and the basic requirements (business incorporation, required business licenses, separate business and personal bank accounts, filed business and personal taxes), you may be ready to work with a Community Development Financial Institution (CDFI), such as the CFNMD. These organizations provide small businesses with access to capital to facilitate community and economic development. While their loan interest rates are slightly higher than traditional banks, their requirements are often more flexible and loans are available in smaller amounts.
CDFI loans are affordable and support small businesses' cash flow—a responsible alternative to the high-interest loans offered by merchant funders and other short-term lenders that drain business cash with daily or weekly draw payments. By becoming CDFI-ready, you can avoid having to resort to this type of expensive capital. Borrowing loan funds from the CFMND and other CDFIs allows you to strengthen your business credit history and maintain financial records, setting you up for the next stage in your journey to loan-ready.
Bank Qualifying:
This is for businesses that have been operating for at least 2 to 3 years with proper documentation like financial statements, taxes, excellent credit, and bank statements that demonstrate the creditworthiness of both the business and owner. Because banks use stricter requirements to minimize their risk, they tend to offer lower interest rates, but often for larger amounts (over $250,000).
Striving to make your business Bank Qualifying is in your best interest in the long term, not just because they offer better terms, but also to gain access to the larger funding amounts your business will need to grow and scale. As you continue on your growth journey, a $150,000 loan might not be enough. Be sure to have your ducks in a row so that you can access the affordable capital you need.
What does your loan-ready journey look like? Strategize where you want your business to be in terms of sales, market coverage, and product or service portfolio. Next, identify where your business is today and what areas need improvement to position your business for future opportunities and to access capital.
At CFNMD, we work with CDFI-Ready businesses to help them along on their journey to become Bank Qualifying. We also work with a network of partners to help businesses find the support, experts and resources needed, no matter where you are in your loan-ready journey.
Join CFNMD this summer as we dive deeper into what it takes to become loan-ready with resources and tips, plus stories of entrepreneurs that have made the journey successfully.
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