As your business grows or unexpected expenditures arise, you may find your consulting business in need of some financial support. In the consulting industry, finding the perfect loan can be a bit more complicated – that’s why specialized loans for consulting businesses exist.
To that end, in this piece we’ll go over:
How financing supports consulting business growth
Important factors to consider when taking out loans for a consulting business
Most consulting businesses have little overhead and can start with relatively few barriers; after all, most of the “product” is knowledge-based and takes up real estate in your head. But that’s mainly for the short term.
Long term, as small businesses in consulting transition into medium firms, they often need financing options to help account for increased expenses.
When you run a one-person-shop, you could work out of your living room or home study. But as you grow and add clients, you eventually reach a point where your personal consulting services simply can’t serve all of them – there’s only so much time in the day.
You’ll need a large enough pool of working capital to offer these new team members competitive salaries, expand your office space, travel, marketing, supplies, and otherwise meet other expenditure requirements. All this can put a strain on your business bank account.
Being able to pay for these services and goods is critical to keeping your business on a growth trajectory, but at the same time it can be difficult to meet these capital requirements as a single business owner and operator with your current cash flow. That’s where a loan for your consulting business can make a difference.
Important Factors to Consider When Taking Out Loans for a Consulting Business
When your business first begins to search out a loan or financing, you need to consider specific factors that will influence which options are best for your business (and which ones aren’t/will be difficult to obtain).
If you’re going to traditional lenders, they will carefully examine your credit score and that will play a huge role in determining whether or not you are eligible for a loan.
Unfortunately, many small business owners may not have great credit scores, which can make it difficult to get a loan from traditional lenders (banks) who have very stringent credit score thresholds.
The next thing that your lender may want to see is your business finance information. This includes recurring revenue, also known as MRR (monthly recurring revenue). Lenders will want to see steady and recurring cash flows, otherwise, you may appear too risky for them.
The lender will also consider how long you’ve been in business and combine that with your MMR. After all, they want to see that your business is stable and has been able to replicate multiple quarters of positive revenue.
Traditional lenders also often look for collateral. However, more often than not, consulting businesses won’t have much in the way of collateral to offer the bank. You may opt to offer tangible assets, but that is a massive risk.
Consider that in June 2021, only 13.6% of small business loan applications were accepted by big banks. With that in mind, let’s evaluate your top loan options as a small or medium-sized business.
The consulting industry is worth hundreds of billions of dollars – and growing. In order to live up to that growth, your business needs reliable access to capital to cover expenses and expansion efforts.
Business Line of Credit
A business line of credit is a flexible business financing option where you can draw the amount of money you need (up to a certain amount or credit limit), allowing you to cover short-term working capital demands.
It works in a similar fashion to a credit card with cash freely available to be accessed whenever needed, deposited instantly into your bank account.
The upside on a credit line is that the interest rates are often far, far lower compared to credit cards. You also only pay interest on the amount withdrawn, not the entire line of credit.
The downside is that there is no grace period with a line of credit – whenever you draw from that account, interest begins accruing on the borrowed balance. As you make payments – which go towards both the interest and principal – that principal amount becomes re-accessible for you to draw upon.
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Lines of credit are a stable, sustainable option to provide cash flow coverage as business expenses pop up. The generous interest terms also make it feasible as a way to access cash whenever needed.
Working Capital Loan
Working capital loans offer your business a way to access short-term capital to cover immediate expenses. They offer shorter repayment schedules but may carry with them higher rates compared to other loan options.
You will have to make fixed daily or weekly installments with these, so you need to be confident that your business can keep up with payments before committing to this loan.
Invoice factoring is an easy, effective way to unlock capital in unpaid invoices. Instead of waiting weeks and months to receive the check, you can receive funds (up to a certain percentage of the invoices) in a day or two.
Essentially, you are ‘selling’ unpaid invoices to a factoring company, which usually becomes responsible for collecting the invoice. Once the invoice is paid, the company adjusts the payment against the amount it paid out and returns the balance to you.
If you’re confident in your business (and your clients), invoice factoring offers a very strong alternative lending option.
We’ve identified how difficult it is to get loans from traditional lenders and your alternative loan options – but how hard is it to get approved for those alternative loans listed above? Not hard at all.
Whereas owners with lower credit scores and newer businesses will find themselves rejected again and again by the big banks, with a trusted alternative lender like Credibly, you can access the capital you need faster and with fewer roadblocks.
We are less concerned with your credit score and are more interested in your business and your vision. To that end, we can approve you for a loan in as little as four hours and have the cash in your account on the same day you apply – all while providing industry-low interest rates.
In other words, our innovative tech, smooth application process, and wide variety of financing options allow us to help you get access to the financing you need.
That way, you can get back to what you do best – growing your business.
Empower Business Growth With the Right Loan
Eliminate frustrating cash flow crunches with financing perfectly suited for your consulting business.
Talk to a financing expert to find funding options you are eligible for and get funds in as little as 24 hours.