Debt Financing

Just about everyone has used debt financing at one time or another. Debt financing is when you borrow money from a bank or investor with the promise to repay the funds according to a pre-determined payment structure and interest rate.

Debt financing can be a short-term loan or a long-term loan depending upon how much you need to borrow and the loan terms. The great part about debt financing is that you get to continue to have full ownership in your business unlike other financing opportunities. Here are some things you need to get ready in order to acquire debt financing:

1. Steady cash flow. A lender will provide you with funds if you aren't putting your business in a position of financial disarray. They want to see that you aren't taking on large orders from customers without getting a down payment first. Keeping a positive cash flow will go a long way for lenders that are looking to provide you with the money you need.

2. A strong business credit rating. Do you borrow money and repay it in a timely manner? Do you have vendors that report your activity to the credit bureaus? Paying your invoices on time provides the lender with a lower risk and they will be able to offer you debt financing.

3. Excellent financial records. When lenders are learning about your business they will ask to review your books. Do you have a good bookkeeping policy? Consider using Excel spreadsheets or QuickBooks to keep your small business finances in order and to improve your chances to acquire debt financing.

4. Always pay your business taxes on time. The lender will require a copy of your recent tax statements to see that you have paid your taxes on time. If you get in financial trouble with the IRS and you have alien placed on your business assets, it's going to be a bit of a challenge to gain debt financing from anyone.

5. Financial plan. What are you planning to do with the money? Lenders need to see what your financial plan is for the business and they want to see a borrower that is going to use the money to pay for things that will help the business. Have a list of everything you need to purchase and their cost in order to provide the lender with a well-rounded view as to why you need debt financing.