Starting Small: A Strategic Approach to Business Funding

Despite market crashes, pandemics, and other unforeseen challenges, small businesses have remained the lifeblood of the American economy by creating jobs, spearheading innovation, and generating a large portion of global sales. However, one of the greatest challenges that business owners face is effectively managing their working capital. Insufficient capital management often leads to cash flow issues, missed growth opportunities, and premature business closures. Additionally, businesses are commonly approved for financing amounts that are lower than requested. In certain cases, we at Approvd advise that small business owners start small when leveraging capital funding. This article explores the benefits of this game-changing approach.

1. Improved Financial Stability

Starting small with capital funding can help prevent the business from becoming overleveraged. Getting a large cash infusion may be tempting but can also lead to difficult debt and interest payments. Gradual, responsible borrowing fosters stability and ensures that businesses can responsibly manage their debts and expenses.

Interesting Fact: In the US, over 60% of small businesses struggle with cash flow every year. Starting with smaller amounts can help manage this critical aspect more effectively.

2. Lower Risk

Small business owners typically encounter high volatility, where the propensity to adapt is vital. Starting small allows entrepreneurs to better assess the impact of borrowed funds, making necessary adjustments or pivoting simpler. This flexibility also reduces the probability of financial distress and poor investments.

Interesting Fact: According to the Small Business Administration, approximately 50% of small businesses fail within the first five years, often due to poor financial management. Starting small can mitigate some of these risks.

3. Clear Decision Making

Starting small allows entrepreneurs to make well-informed decisions and carefully consider the best use of funds. Furthermore, taking the time to understand your options is important as growing your creditworthiness unlocks additional financing options, which you may not have been eligible for before. This approach helps track results and avoid unwise financial decision-making.

Interesting Fact: Business owners who start small and gradually increase their funding are more likely to achieve long-term success. This strategy helps them adapt and make more informed decisions.

4. Reduced Interest

Borrowing smaller amounts means lower interest payments, which are easier to manage. It’s important to keep these costs under control, ensuring that the funds are working in your favor and the debt is not hurting your business. Additionally, displaying good payment history on smaller funding amounts will incentivize lenders to offer favorable terms on future financing.

Interesting Fact: On average, small businesses in the US pay around 6% to 12% interest on loans. Lowering the principal amount can significantly reduce overall interest costs.

5. Developing Lender Trust

Here is a lesser-known business finance tip – underwriters favor business owners who elect to receive lower funding amounts than they are qualified for! Not “maxing out” signals responsible borrowing and implies clearer intentions for the use of the funds. This alleviates several concerns for lenders and leaves space to acquire additional funding should you need it. While this strategy does not directly impact credit utilization, it can have a positive effect on your creditworthiness.

Interesting Fact: Businesses that demonstrate prudent borrowing habits are more likely to receive better loan terms and higher approval rates in the future.

Conclusion

Ultimately, starting small when leveraging working capital promotes sustainable growth while mitigating the risk of burning out or acquiring excessive debt. It can be used as a necessary stepping stone to acquiring financing for a higher dollar amount. Maintaining capital access that is appropriate to the stage of your business helps achieve continuity and sustainable success in our evolving economic climate. Like the old adage says: slow and steady wins the race – even in business finance.

Ready to take a strategic approach to business funding? Get offers today! Fill out an application with Approvd and discover the ideal funding solutions for your business. For more financial insights, visit our Approvd Resources page.

About the Author

With over 20 years of experience in the business loan marketplace at Approvd, our expert has helped countless small business owners navigate the complexities of securing the right funding. Passionate about empowering entrepreneurs, our expert combines industry knowledge with a deep understanding of the challenges faced by small businesses today.

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