Find out all about marketing financing, and whether it is a good fit for your business needs.
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When it’s time to launch a new offering, it’s critical that you get the word out to as many people as you can. And while there are plenty of ways where small business owners can market their products or services without a sizable budget, external financing may be required from time to time to fund larger scale initiatives. Here’s where a marketing loan will come in handy.
Common uses of marketing financing include:
Fund online marketing strategies: External financing can help fund a wide-ranging variety of online marketing strategies - from content marketing and PPC ads, to social media campaigns, referral programs and influencer collaborations - as well as enable businesses to leverage the latest digital marketing trends. Some examples of emerging trends include interactive chatbots, AI technologies and voice search.
Finance offline marketing efforts: It’s not all about digital marketing; for certain businesses - such as wholesalers or medical practices - it often requires a combination of online and offline strategies to achieve the best results. Direct mail marketing or advertising in niche print media can be effective for wholesalers, while medical practitioners may explore strategies like participating in local health fairs and community events.
Conduct marketing research: Investing time and resources into market research is an uphill task for small businesses - yet it’s critical to check in with your audience from time to time, and garner insights to help you better plan future strategies. While your market research efforts won’t involve complex statistical models or hefty budgets, external financing can be helpful in financing small scale market research projects or access to digital marketing and online survey tools.
Line of credit
A line of credit, also known as revolving credit enables you to draw against a pre-approved amount as and when you need to. Interest is paid only only the funds that you draw out, and the amount repaid is available to be drawn again. It’s flexible financing tool you can use to fund a variety of short term marketing expenses.
Merchant cash advance
A merchant cash advance (MCA) isn’t a loan, but a cash advance based on your credit card transactions. Through a provider, you’ll obtain an advance payment, which will be repaid with a percentage of your daily or weekly credit card sales. This means that rather than paying off a fixed sum regularly, you’ll make smaller repayments during lull periods and likewise, pay off a larger sum when you have increased sales volume. It’s a financing option that lends itself to businesses that accept a large volume of credit card payments - such as beauty salons, retail outlets and restaurants.
Short term loan
In general, short term loans are financing options set to be repaid within six months. These loans are easier to qualify for compared to longer term loans, offer quick access to funding and are typically used to address short term business needs - such as covering seasonal cash flow gaps. Examples of short term loans include merchant cash advances, lines of credit and invoice financing.
Unsecured loans aren’t secured by collateral. Borrowers aren’t required to put up assets on the line for financing; instead, these loans are approved based on factors such as a borrower’s business credit score and strength of cash flow.
Draw up a detailed plan of action
A detailed business plan that is a clear indication that you’re well prepared, and shows where your business is headed six months or a year down the road. Here are some tips that can guide you towards crafting a business plan that will position you as an attractive borrower:
Include industry statistics and research:For newly established ventures that don’t yet have significant historical financial data, it can be helpful to provide industry statistics so that potential lenders will have supporting data to assess your projections. If you’re seeking financing for a specific marketing initiative, do include research that shows consumer demand for the products or services you’re offering.
Emphasise past successes and current projects: It can be difficult convincing lenders that your business is a good investment with long-term potential when you’re a newly established venture. Instead of focusing on future projections and long term plans, draw attention to previous marketing strategies that were successful, or current projects that are driving results for your venture - and show how you’ll using your loan to finance these strategies moving forward.
Demonstrate your ability to repay the loan: Beyond the essentials - like your repayment plan, business plan, personal tax returns and your most recent financial statements - it’ll also be helpful to include alternative repayment plans. These plans may include terms that weren’t part of your initial loan application, such as an offer to put up assets as collateral.
The best time to apply for a loan is when you don’t need it
Don’t wait till you’re facing a cash crunch to apply for external funding. According to business financial consultant Barbara Vrancik, lenders “are reluctant to lend when a business is facing a liquidity problem or is desperate for a cash infusion, even if they are profitable. If a lender does lend under those circumstances, the cost of that financing will be high.”
She recommends that businesses apply early on for a loan - when they don’t actually require it - and time their application at a period where their “financial results are the strongest in the business cycle”.
Traditional lenders typically have stringent lending practices in place, such as having a minimum annual revenue of $200,000 or an operational history of two to three years - requirements that make it difficult for small businesses to qualify for bank loans.
Increasingly, these businesses are turning to alternative lenders. Offering streamlined application processes and greater flexibility, these lenders can be a viable option for businesses that aren’t eligible for traditional financing solutions.