The Ultimate Guide to Securing Business Financing

by Backd Business Funding
November 9, 2022
The Ultimate Guide to Securing Business Financing

A lifelong mission for all entrepreneurs is to turn their dreams into plans by growing their own business. The biggest roadblock that stops most of them dead in their tracks, however, is access to funding. Whether it be the overwhelming confusion in trying to figure out how to secure a small business loan or not receiving enough cash flow, business owners struggle in achieving small business funding. In light of this issue, Backd created this ultimate guide that explains everything you need to know to get business funding.

What are the types of financing I can seek?

Working Capital

Working capital is a metric that gauges how much money your business has to work with in the short term. The net working capital formula is very simple: current assets - current liabilities.  Proper working capital management is essential to understanding your cash flow potential. It is different from pure profit because it accounts for the loans, interest, etc. that you’re paying. There are 4 main components of working capital that impact your business. Even if your business is in profit, not having the working capital and liquid cash to pay off your liabilities would bode poorly for your business. There are several types of working capital from which businesses can choose to best accommodate their financial needs.

Line of Credit

If a traditional loan seems too restrictive and your business is looking for flexibility, a line of credit may be your best option. Instead of receiving a certain payment each week or month, lenders will assign you a credit limit (usually much higher than what a business credit card offers). Instead of paying interest on the entire amount of funding like you would with a loan, you only pay interest on the funds you withdraw in a business line of credit loan. There are even subspecialties like a revolving line of credit, where your credit replenishes after paying any outstanding balances. Check out our blog on line of credit vs. loans for a better idea of what you should choose.

SBA Loans

The Small Business Administration (SBA) is an independent agency of the federal government that offers loans and funding to small businesses across the nation. On the SBA login, you can enter a zip code and find local lenders who can provide funding and help manage your loans. Within the SBA, there are a whole host of loan options, including smaller loans, express loans, and international trade loans. You may also be able to find an SBA grant, but these are fairly limited. Despite this variety of funding, several loan seekers complain that the SBA loan application takes too long to approve and could require you to put up personal collateral.

Equipment financing

Equipment financing refers to a specific type of loan used for the purpose of obtaining business equipment. Some uses of new or used equipment financing could be to fund construction tools, new computers for employees, or office furniture. This is different from equipment leasing, which is directly renting equipment from vendors. You would not retain ownership of any equipment whereas you would own the equipment after paying off an equipment financing loan. If your credit score isn’t the best, equipment loan terms could be enticing because of its lower interest rates than traditional loans. However, equipment financing companies are quite strict in making sure that you’re actually spending this capital exclusively on equipment.

Commercial real estate loans

A commercial real estate loan is essentially a mortgage for a business. Whether your business is getting started or is rapidly growing and in need of a new headquarters, commercial property  loans may be suitable in helping you finance the right location for your business. Personal mortgages range from 15-30 years, but the most common real estate loan terms will span anywhere from 5-20 years. Commercial loan rates could range from 2-18% but usually average out around 5-7%, which all depends on your credit rating and commercial property loan requirements.

Cash flow loans

Traditional loans are usually secured, requiring a collateral and assessment of your credit score before being approved. Cash flow loans for small businesses operate a bit differently, as lenders and banks will evaluate your historic ability to generate revenue and make a prediction on whether you will be able to sustain this trend. Cash flow financing could be a great option for those businesses with less-than-stellar credit ratings, but this flexible option comes at the expense of higher interest rates. Cash flow loan interest rates tend to not dip below 10% and could even average around 50%. At the end of the day, having a positive cash flow statement is absolutely essential for your business to survive, and this could be the best business loan for bad credit.


Microloans are traditionally lower amounts of funding provided to small businesses and disadvantaged entrepreneurs. These smaller microloan amounts, typically extending up to $50,000, are used to get start-ups up and running or to help the initial stages of expansion. Microloan applications are used as a source of capital for people who historically have had difficulty securing larger loans, but they do have higher interest rates than what you would expect from traditional loans. Small business loans like microloans can help business owners just starting out to build their credit history and pave the way toward more capital. SBA microloan requirements usually include collateral and a personal guarantee, and they may not be used to pay off debt.

Venture capital

Venture capital is a subset of equity financing. In this system of funding, highly experienced investors who are part of venture capital firms provide funding or technical expertise to facilitate the growth of newly founded businesses. In exchange, they receive a stake in ownership of the company. Essentially, these investors are taking on risk and betting the businesses they involved themselves in will skyrocket, netting a lucrative return. Types of venture capital funding vary based on the stage of your business. Venture capital financing could be attractive to entrepreneurs because they will have access to pick the brains of expert venture capitalists in business building during the highly chaotic, initial stages of growing their company.


Have you ever seen those viral GoFundMe posts asking people to donate to a charitable cause? That is a classic example of crowdfunding investment, which is when mass numbers of people each support with a couple of dollars to generate funding for the organizer to accomplish that goal, whether it be fundraising for a social cause or launching a business. Typically, you only want to run a crowdfunding campaign for a few months and sustain a large amount of buzz in that time frame. Crowdfunding for startups is also most effective but can be used at any stage in the business life cycle.

Angel investors

Angel investors are highly wealthy individuals who finance small businesses in return for equity.  They sound extremely similar to venture capitalists, but the difference is that angel investors looking for entrepreneurs pay out of pocket using their own net worth. Venture capital investors are usually tied to a company or firm. Venture capitals play an important role as partners in fostering the growth of a business, but angel investors for startups can have varying degrees of involvement. There are several pros and cons of angel investors. They are able to support startups no matter how early their development and no matter their industry, and there isn’t much administrative paperwork that has to be done to secure a partnership with them. However, some disadvantages of angel investors is that their guidance may be limited and you could lose a great deal of equity.


Grants can be provided by anyone but are usually thought of in the context of governmental organizations. Grant money does not need to be paid back, which makes them extremely attractive. However, if you are able to secure a grant, it usually has rigid specifications on what the money can be used for. When you apply for grants, most organizations, especially federal grants, will mandate that the money go into public benefit programs or those that stimulate the economy. There are also hardship grants available, usually for low-income and disadvantaged populations or during crises like the COVID-19 pandemic.

Invoice factoring

Invoice factoring is the use of a third-party company to help your business with cash flow issues. As you collect invoices from the products you sell to customers, you can “sell” these to the third-party company, who will typically reimburse you quickly. Then, your customers will pay this “factoring company” directly. Invoice financing for small businesses allows your business a more predictable sequence of income so you can pay off immediate expenses. Invoice financing cost ranges from 1-5% of your total invoices per month.


Merchant cash advances

Simply put, a merchant cash advance (MCA) for startups is when businesses receive cash in advance payment terms and pay it off with future sales. After receiving capital, you will pay off this cash advance by sending a percentage of each sale to merchant cash advance lenders that gave you the initial lump sum. There are plenty of MCA loans for bad credit. This alternative funding could be advantageous to businesses who are in desperate need of cash flow.

What documents/information do I need on hand?

Different lenders vary in the documents required for loan approval. Below is a comprehensive outline of everything you could be asked to provide. Hopefully, this checklist will make securing a business loan smooth and hassle-free.

Basic information

  • Name

  • Business Street Address

  • Business Phone number

  • Years in Business and Date Established

  • Personal Driver’s License

  • Resume

Business documentation

  • Business Plan

  • Business Size and Industry

  • Business License and Permits

  • Articles of Incorporation

  • Any Third-Party Contracts

  • Commercial Leases

  • Business insurance plan

  • Proof of Collateral

Money numbers and documents

  • Annual Revenue

  • Net Profit Numbers

  • Annual Gross Sales

  • Balance Sheet

  • Income Statement

  • Cash Flow Statement

  • Bank Statement

  • Accounts payable and account receivable

  • Records of payroll

Tax and Credit Documentation

  • Business Credit Report

  • Tax ID / Employee Identification Number

  • Personal and business tax returns

  • Documentation of any and all outstanding balances

Important Ratios

There are several pertinent ratio lenders like to see and interpret because they offer quantitative interpretation on the health of your small business. If you are rejected for a loan, chances are good that at least one of the following ratios is a red flag.




Target value

Debt to Income Ratio

Monthly debt payments / Monthly gross income

Compares what you earn and what you owe

Under 36%

Cash flow to Debt Ratio

Operational cash flow / Total debt

Quantifies your ability to pay off debt

Greater than 1

Debt Service Coverage Ratio

Net income / Debt service

Measures ability to take on debt

1.25 or higher

Quick ratio

Liquid assets / Liabilities

Measures your ability to extinguish liabilities

1.0 or higher

Capital Gearing Ratio

Total debt / Total equity

Measures long-term stability by comparing debt and equity

Between 25-50%

Loan-to-value Ratio

Mortgage amount / Property value

Used to assess risk when considering real estate loans

Under 80%

Net Working Capital Ratio

Current assets / Current liabilities

Measures the liquidity of your business

1.5 - 2.0

What is a Good Credit Score?

Your personal and business credit score will make or break your loan-securing capabilities. The average credit score, based on the 2022 credit score chart, is 716. As far as numbers go, most lenders will consider credit scores as low as 650-700, but they will look at your business far more favorably (and thus increase your odds of funding) with excellent credit score ranges from 700-800.  At Backd, we only require a minimum score of 600 for either working capital or line of credit financing.

How Can I Increase My Credit Score?

Given how poor approval ratings are for loans (about a 15% approval rate from big banks), it is of the utmost importance for entrepreneurs and business owners to prioritize excellent credit scores. Building up credit is a long-term process that can take months or even years depending on your situation. The best way to check credit score is by requesting a copy from one of the three major credit agencies (Experian, Equifax, and TransUnion).

  • Average credit score by age 21: 630

  • Average credit score by age 30: 670

  • Average credit score by age 40: 680

  • Average credit score by age 50: 700

If you look into the complex math behind the calculation of your credit score, you’ll see the algorithm assesses you based on one overarching theme: How reliably will you pay back what you owe on time? There’s a couple of ways to help convince lenders that you will be responsible. If you haven’t started yet, here’s some ways you can start today:

Verify your credit reports are accurate

At minimum, you need to be checking your annual credit report once a year. It’s entirely possible to see mistakes in the credit summary that are responsible for poor credit scores. Some of the more common errors could include identity theft or fraud, seeing an account of somebody with a similar name as you on your credit report, or duplicate debt entries. If you happen to find an error, collect any relevant documentation, and be ready to present your evidence as soon as possible to your credit bureau.

Keep your credit utilization rate low.

Having a credit limit does not mean you should be trying to reach that number at the end of every month. In fact, doing so is a cause for concern and could actually lower your credit score. The rule of thumb is that your monthly outstanding credit card balance should never exceed one-third of your credit card limit. This will give the credit card company confidence in your ability to pay off bills and is the optimal way to build up your credit score. On that same note, you should ask for higher credit limits frequently. Maintaining the same expenditures with a higher credit limit looks even better and will boost your credit score.

Pay on time

Failing to pay on time is just about the worst thing for your credit score (remember when we talked about how credit score is calculated?) If you are simply unable to pay the full amount on time, pay off as much as you can to soften the blow. It’s a great idea to set up automatic payments at the end of the month so that you’ll never forget and unnecessarily drop your credit score.

Properly maintain a diverse credit mix

Your credit mix is the assortment of credit accounts that you have opened (like student loans, credit cards, mortgages, etc.) Having the ability to juggle a diverse credit mix without missing any payments bodes well for you. Now, that doesn’t mean to open up several credit accounts in an attempt to kickstart your credit score. It’s important to know your limit and be able to pay off all these accounts consistently and over a long period of time, as length of credit history is another major factor in your credit score.

As you can see, receiving business funding can get very complicated very quickly because there’s so many options and requirements to consider. We realize this is an overwhelming amount of information, so our Backd business model intentionally makes it hassle-free. See funding in your business account within 24 hours by completing our application in just 3 minutes.

What would you do with the right amount of capital?

Working Capital Advance

Easy payment structures offer amounts with fast turnaround, Simple and easy process to access working capital.

  • Flexible - no collateral required
  • $10K - $2M
  • Terms up to 16 months
  • Automatic daily or weekly, or semi-monthly payments

Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

  • Draw funds anytime
  • $10K - $750K
  • Unlimited terms, incredible rates
  • Soft credit pull that doesn't affect your credit score