By Ty Kiisel
When you earn the lion’s share of your profits during the holiday season, there are two big questions small retailers should be asking themselves:
1. Did I adequately prepare for my holiday business?
2. What can I do if holiday sales are bigger than I expected?
The answers to both of these questions can have financial ramifications for small retailers. They can also be addressed by anticipating expenses: both your business’ immediate capital access needs and those for which you can plan ahead. Taking a critical approach to when and how you borrow will help maximize the value of every dollar you finance.
Meeting Short-Term Capital Needs
As you read this, you’ve likely already purchased all your holiday inventory and are hopeful you’ve got the right things on the shelf and enough of what people want to buy so you can enjoy a wildly profitable holiday season. If all goes well, you’ll have all you need to end the year on a high note. But, what if your holiday sales are bigger than expected and you need to restock your inventory?
Of course, that’s a problem many retailers would embrace, but it can also requires capital that you may not have on-hand. Most traditional lenders have an application and approval process that can take weeks. At crunch time during the holidays, waiting weeks isn’t an option.
Fortunately, there are online alternatives that may be able to give you an answer today and enable you to have cash in your business banking account quickly — sometimes within 24 hours. Strategically planning ahead and knowing where you’ll look should you need capital quickly will help you avoid wasting precious time when sales are great, but inventory is low.
Make sure you know your options and have a good idea of where the odds are the best for success. If you find yourself short of capital this holiday season, there are steps you can take today to get on track and plan ahead for next year.
Planning Ahead for Capital Needs
As this year winds down, taking a strategic approach to the coming year may help you better prepare for your capital needs over the next twelve months.
Identify your loan purpose: Understanding why you’re borrowing is critical and will help you make other decisions about a potential loan. If you can clearly articulate what you’re borrowing for it will help you determine what type of financing might be a good fit for you and your business. For example, borrowing to take advantage of an opportunity to purchase quick-turnaround inventory for the holidays is a different need than expanding your retail space or adding another location. It will help you identify whether it is a short-term need or a long-term need.
Calculate how much money you really need: As you look at your capital needs for the next twelve months, it will help you determine when you may need to borrow, when the best time for approaching a lender might be, and what type of lender you may pursue. The traditional financing process can take weeks or even months to get capital. However, many online lenders are able to process your application the same day and have funds in your account in within day or two. Of course, this level of premium service and quick response will likely cost more than a traditional loan at the bank, but depending upon your loan purpose, speed is the primary reason many small business owners go to an online lender and don’t go to the bank.
What does your business credit profile and personal credit score look like? Lenders want to know that you have the resources to repay a loan, that you will pay a loan, and that you will be able to make each and every periodic payment throughout the loan term regardless of any unexpected circumstances. They look at your credit profile as a way to see what you’ve done in the past and evaluate what you will likely do in the future. What’s more, as a small business owner, it’s likely your personal credit score will always play a role in a lender’s credit decision. Evaluate your business credit profile and your personal credit score to help you determine where you are strong and where you might need to strengthen your profile. The good news is being aware and taking action will improve your profile. Although a strong credit profile is no guarantee you’ll find success with a lender, it does open the door to options that would be unavailable to a similar business with a weak profile.
Don’t automatically dismiss options that might be unfamiliar to you: Access to capital is one of the biggest challenges many small business owners face. Borrowed capital is a traditional way small business owners fuel growth and fund other ROI-generating initiatives. While the bank has traditionally been the place small business owners have turned to for financing, many business owners are finding other options, like online business loans, are a good fit for their loan purposes. If you find a lender you think you like, check them out with the Better Business Bureau and other review sites. You should also ask to speak with a current customer or two.
Make sure you have all the information you need at your fingertips: In other words, do you have a good understanding of the financial condition of your business? It’s not uncommon for a lender to say, “If I understand more about a business by looking at the numbers than the business owner does, I’m not going to approve their loan request.” It’s not only a critical part of building a successful business, it will help you identify the financing opportunities that make the most sense for your situation. Not all lenders require the same type of information, so it’s important to make sure you know before you visit with a lender what they will be looking for so you can be prepared.
Taking a strategic approach to borrowing is an important part of building a successful business and having access to the funds you need to fuel growth. Planning ahead will enable you to honestly evaluate your current situation, prepare for upcoming needs, and put your best foot forward when seeking financing.
Ty Kiisel is the Head of Small Business Education for OnDeck (www.ondeck.com). OnDeck is the largest online small business lender in the U.S.