Did you know that around 43% of businesses seek finance within a year? For many companies, finance is essential for getting a business off the ground or increasing profits. But did you know it can come with many pitfalls?
Luckily, we are here to help you avoid them. Read on as we discuss our top six mistakes with business financing.
Waiting until the last moment to secure sources of finance is not a good idea. While it stands to reason that many people would not get finance until they need it, you have more chance of being able to secure the loan when you are in good financial standing.
Try to preempt the times you will need finance and apply in advance. This also gives you time to shop around for more favorable terms.
2. Borrowing Too Much
When you get financing for small businesses, you may be surprised by how much lenders are willing to give you. However, taking on too much can really damage your business. If you have trouble paying back the loan, it will damage your credit and hinder future financial plans.
3. Not Looking at Fees
The payment period and interest rate should not be the only factors you check when you look at sources of financing. Many loans have hidden fees in the fine print, for contracts and administrative services. These can add huge amounts to the loan, which may make you rethink a low-interest rate loan when you look at it carefully.
4. Lack of Collateral
Lenders are more likely to fund you if you have some sort of collateral assets, such as real estate. This minimizes their risk if you don’t pay back the loan or go bankrupt. They have something to seize to reclaim what they have lost.
5. Not Having a Solid Business Plan
Any business financing strategy starts and ends with a plan. A lender will go through this with a fine-toothed comb. They will want to know everything from how the business is doing, to why it is unique and how the money will be used.
If you already have a business, then you will have finances ready to show them. Talk about how the money will be used to increase revenue and prove you can pay the loan back.
6. Not Shopping Around
You will find that offers differ vastly from bank to bank. You should shop around for the best ones, keeping fees in mind. As discussed, doing this in advance affords you more time to get the best deal.
In addition, banks should not be your only option. Credit unions, small business loans, and even crowdfunding are all legitimate ways to make money.
Mistakes With Business Financing
Now you know the mistakes with business financing, you can hopefully avoid them. Always try to plan in advance, allowing you time to weigh your options. Make sure you have valid reasons for needing the finance and can prove its worth.
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