“To err is human”, wrote poet and satirist Alexander Pope in his Essay on Criticism. We all make mistakes, but we should only be making them once, learning from them and growing.
One of the areas where businesses make their biggest mistakes is financing, mistakes which can be expensive and ultimately cost the business.
There are ways to address business finance and acquire the funding you need to keep operations afloat.
Download our white paper on sources for funding for more information.
Here we highlight some of the biggest finance blunder and offer some tips on avoiding them.
- Failing to plan
- Waiting until the last minute to find funding
- Forgetting about cash flow
- Not checking your credit scores before applying for funding
- Forgetting about hidden fees
#1 Failing to plan
Failing to plan is planning for failure and a lot of SMEs and start-ups don’t have an adequate business plan. If you are serious about business growth and you’re looking for high quality business finance products, not having a business plan is a big mistake.
Writing a winning business plan will help you provide clarity for your lender and help them to understand how the funds will help you achieve your business goals as outlined in the plan. Not only that, you will be able to map out your own pathway for successful growth.
You’re not doing yourself any favours by not having a business plan. Your lender will want to see that you’re responsible, stable, and know what you’re doing. Remember, they are investing in you and your business—so they will want to know where the funds will be going and the ROI that they can expect.
Click here for tips on writing a winning business plan.
#2 Waiting until the last minute to find funding
Many small business owners don’t apply for business financing until they are desperate. In theory, this makes sense. Why would you apply for funding when your business is in rude health? After all, funding is for the times when you don’t have ready cash or your cashflow is stagnating leaving you unable to pay staff or buy stock? Isn’t it?
In fact, the reality is that it’s easier to get favourable loan terms, including lower interest rates and longer repayment terms, if your business has solid financial foundations and a reputation to match. This might mean applying for financing before you need to use it. Your business plan can help you with the timing.
Short-term lenders specialising in financing solutions with quick application processes understand that their borrowers are often more of a risk. Their interest rates will be higher, and their terms will be less favourable.
If you know that you’ll likely need business financing in the future, it’s a good idea to start the application process sooner rather than later. Leaving a loan application until you’re low on cash might put at risk of not being able to make your loan payments—and digging yourself into a much deeper debt hole.
#3 Neglecting the importance of cash flow
Repayments for some financing solutions are more frequent than others. For instance, a merchant cash advance is repaid by deducting a certain percentage of your credit card sales every day. Some short-term loan borrowers may have to make loan payments on a weekly or even daily basis depending on their loan terms and conditions.
But what if there’s a disruption in your cash flow, and you’re having trouble making your frequent payments? In the case of a merchant cash advance, since the amount you pay is proportionate to your credit card sales, this isn’t much of an issue. But in the case of short-term loans, running low on cash and missing payments can be dangerous for your credit score—and your business.
Here are some tips on dealing with fluctuations in your cash flow.
#4 Failing to check your credit score before applying for a loan
When it comes to business financing, it pays dividends to do your homework. This will give you a realistic idea of what business financing solutions you’d potentially qualify for—and which ones you wouldn’t.
Understanding your options means knowing all the ins and outs of your business, including your credit score. Your credit history is one of the most important factors lenders will consider when assessing your loan application. Before you start the application process, make sure all the information you’re providing your lender is accurate.
If there are errors on your credit report that are having a negative impact on your credit score, you need to have them corrected before you start applying for funding. You’ll save yourself the major headache of having to explain an inaccurate report to a lender.
Funding applications will show up on your credit report and affect your score. If you have made lots of applications for finance or been turned down for any loans or credit products – business or personal – your credit score may be lower than you think.
Don’t despair if you find your credit score is lower than you thought it was, there are many business financing options available for business owners with little credit history or bad credit.
#5 Forgetting about hidden fees.
Remember some good advice, always read the fine print. Business loans may be subject to fees that are not immediately apparent. Business owners sometimes forget to take this into consideration when applying for funding.
Hidden fees can include origination fees, contract fees, application and other administrative fees, among others. Fees may also be deducted from the loan amount you receive. This means that you are going to receive less capital than your loan is worth.
There are other costs business owners sometimes fail to consider such as paying for accountancy and other specialist business services which, depending on the financial health of your business, could mount up and have a detrimental effect on your business.
Regardless of the type of funding you need, do your research. Each of these mistakes is easy enough to avoid—and when the future of your business is at risk, you know how much it pays to be prepared.
For more detailed information on all the funding options available contact one of expert advisors today.