Applying for Small Business Financing 101: Financial Expert Jacob Avigdor Breaks it Down
By Jay Avigdor, President & CEO — Velocity Capital Group
Need to find financing for your small business? Given the plethora of options, it’s easy to feel overwhelmed. But in my experience, making the right choice is simple — success comes from forging strategic partnerships that will help your company grow over the long term.
To be clear, I’m not a lender or a financial advisor. My company has a different role in this space, but my mission has always been to help small businesses grow and improve their cash flow.
In my experience, many entrepreneurs make financing mistakes that could easily be avoided. Below, I explain how.
Don’t dig yourself into a hole
It’s a bad sign when a business wants financing because their monthly revenue drops for whatever reason — maybe their receivables didn’t come in — and they’re trying to fill that gap. Another poor reason to get an advance would be to cover payroll.
These situations remind me of a movie in which a little boy is unjustly sent to prison, where he’s forced to dig a hole in the desert to look for treasure. Since there’s nowhere to put the dirt from the hole, he needs to dig another one, and so on. The problem just gets worse and worse.
In order for financing to be a good idea, it shouldn’t just help your business maintain the status quo. Instead, it should build your capacity or assets in some way. The right time to apply for funding is when you have a growth opportunity. Maybe you have the ability to purchase inventory from a supplier at a discounted rate, or perhaps a massive order came in, and you need to fulfill it in a short time period. Those are good reasons.
Don’t just look at the interest rate
Another mistake entrepreneurs and other business leaders often make is choosing the cheapest financing option, rather than the one that will position them for long-term success.
Part of the problem is that many borrowers don’t understand how much specific advances will actually cost, so they misidentify which option would be the cheapest for them. Keep in mind that there are bad apples in this industry. While certain deals might look inexpensive on their face, they may surprise you with additional fees or compound interest clauses in which you end up paying interest on your interest. The initial lender might even sell your contract to someone else, and you might suddenly find yourself on the hook to them for fees you didn’t factor in at the beginning. What looks like a reasonable 12 percent rate might actually annualize to 30 percent or more when all these tricks of the trade are factored in.
That’s why it’s important to do your due diligence. Scrutinize sources’ reviews and weed out those with dissatisfied customers. Just because an interest rate is lower doesn’t mean it will be better, so pay close attention to the fine print of any offer. Do your own calculations, accounting for all the contract’s terms.
Look for a strategic partner
Another mistake small business leaders often make is focusing only on the interest rate and monetary terms of prospective funding, forgetting to weigh the other essential components of such agreements. As a result, they end up choosing the wrong partner.
The right strategic partner will help your business grow. They will not only provide the capital you need in the short term, but also give you expert advice and connect you to other advantageous business partners in their network. Not every lender can do that for you. Who can give you the most bang for your business? That’s the relationship you should cultivate.
In particular, US Small Business Administration (SBA) funding can be a great source of cash for small businesses, but keep in mind that they only offer a one-and-done solution. Once you apply for and use that infusion from the government, you can’t go back for more. Getting money from the SBA is different from establishing a relationship with a strategic partner who can have your back whenever you need it down the road. This kind of relationship is something you should strive to nurture, whether or not you ever use SBA programs.
On a related note, if you do apply for financing, make sure not to apply to too many places at once. Getting your credit score dinged by multiple institutions will have a negative impact on it, which will also have a negative impact on the terms of any offer they make.
Approach strategic partners at the right time
Another common mistake entrepreneurs make is that they approach funding sources only when they’re hurting for cash. These small businesses usually struggle to secure financing, and the financing they are able to get isn’t as advantageous.
It may seem counterintuitive, but the time to approach funders is when business is steaming hot. You might think you don’t need financing at this time, since orders and revenue are rolling in, but this is when sources want to give you money and when you’ll be able to get the best terms for it. Remember that conventional financing from banks can take months to arrange.
In other words, you should secure financing when your business is doing well because you will find it easy to secure strategic partners during this time. By developing these relationships when your business is strong, you’ll be able to fall back on them if your business ever finds itself in a less attractive position. With a productive working history already in place, your strategic partners will be more willing and able to pull you over tough times.
Keep your focus
If you think long-term and approach financing sources for your small business as strategic partners, you’ll be able to maximize your chances of making a good choice. Keep your focus on developing and maintaining healthy, strategic connections over time, and your business will grow.
— Jay Avigdor is the President & CEO of Velocity Capital Group, a direct funding platform located in Greater New York that funds small businesses nationwide, servicing over 15,000 clients since its founding in 2018. A noted funding expert with a 13-year career, Avigdor has developed an extensive network of over 40,000 relationships with clients and brokers, contributing to an impressive $850 million in sales. His innovative technological approach is setting new trends in the industry by merging finance with technology through automation, thus allowing a quicker and smoother process for merchants and brokers serviced. Avigdor is a graduate of Touro University and currently lives in upstate New York.
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