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American small businesses employ close to 59.9 million employees. The statistic translates to almost 47.3% of the total American labor markets. With such high labor costs and other related operating costs, small businesses must keep seeking new ways of financing their routine operations.
For any business, small or medium-sized, financing is one of the most common concerns. Part of planning during the startup stage involves finding ways of financially sustaining your enterprise. However, when it comes to financing for business, most entrepreneurs end up making costly mistakes.
Are you looking for sources of income for your venture? It would help to have a careful review of all your financing options before making a decision. This article shall focus on the seven common mistakes you must avoid when seeking financing for business.
Read on to learn more about the common mistakes to avoid when seeking business finance.
1. Borrowing More Than You Can Handle
When starting a business and during the consequent period of operations, financing is often a constant concern. During such instances, the temptation to borrow more than you can handle can be overwhelming. At this point, you don’t have as many checks coming into your accounts receivables yet, which might blind your decision-making process.
Borrowing is okay within the business context, given that it can help you grow your business. The problem comes when you begin borrowing more than you can afford to pay back. Even when your lender is willing to give you more, it would be prudent to assess your ability to pay.
Sometimes, it helps to slow down your quest for financing and evaluate the loan’s implication in the long-term. It’s okay to stop direct borrowing until a time when you can handle such loan facilities.
2. Waiting Until You Need Fast Cash
When running a business, it would help to avoid seeking financing as a matter of emergency. When you seek loan facilities through fast loans, you risk having to pay more. It’s much easier to enter into a favorable loan agreement when operating on your terms.
Lenders who offer quick application processes for loans also understand the risks involved when giving such loans. As such, these lenders tend to charge exorbitant interest rates on such loans. For you to avoid such urgent loan processing processes, it would make more sense to consider requesting loans early in advance.
3. No Business Plan
Failing to plan is planning to fail. The truth is that you can’t be preparing to access financing if you don’t have a plan on how you intend to use the money. Few lenders will consider a request for funding if you don’t have a business plan.
Whether you are approaching an equity investor or a bank, it would help to have a business plan in place. Creating business plans when seeking finances gives the lender the impression that you know what you are up to.
Further, a business plan also helps you put the money borrowed into the proper use. When you don’t have a business plan, it becomes hard for you to access and use the loan facilities in the right way.
4. Failure to Consider the Hidden Charges
Most finance facilities are enticing. You’ll likely end up falling into the trap of applying for such loans without reading the fine print. The bad news is that loans attract numerous hidden charges. Unless you are careful enough, you might end up paying close to double of the initial loan requested.
Hidden charges often include origination fees, contract fees, and application fees. It may also help to consider the administrative fees charged on each loan facility before committing. Most of these costs may be hidden from the common eye.
If you don’t have an in-house bookkeeper, it might help to pay more attention to the fine print. Often these charges make up a substantial amount when accumulated.
5. Failure to Undertake Background Checks
Financing for business can be a tricky process, especially when you go in without conducting adequate initial research. You need to consider each potential lender and the loan facilitation standards before going in full throttle. Not every lender has you at heart.
It would help to undertake reviews, including feedback from previous clients. It would also be helpful to consider advice on the loan options that will best suit your needs.
6. Failure to Consider Credit Score When Taking Loans
When applying for a loan, your first consideration should be your credit score. Doing your homework is vital to help you identify the loan options that you can access without experiencing credit caps. Accessing financing for business often takes into consideration your loan repayment history.
A high credit score will attract favorable lending options. Your worst mistake would be to seek financing options without having confirmed your credit score.
7. Not Considering All the Available Options
When seeking financing for business, you might fail to access funding if you don’t know what options are at your disposal. This should be your first consideration. Whether you want to go for venture capital or partner financing, it might help look at each option in-depth and its impact in the long-term.
It would also help consider the available avenues that can help you increase your chances of getting funding faster. Working with an independent mortgage broker is one way to ensure that you get adequate information on all the available funding options.
Avoid These Financing for Business Mistakes
Funding is an essential part of running a business. Whether yours is a startup or an ongoing enterprise, it’s vital to research and understand the funding process and the dynamics involved.
Are you applying for business loans and wondering how to go about the process?
These seven mistakes may cost you big time. When seeking financing for your business, it would help to undertake background checks to ensure that you understand all the factors that might limit your chance to access such loans or affect your ability to repay the loan. To navigate this complex landscape more effectively, consider working with Business Finance Brokers who can provide expert guidance and help you find the best financing options.
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