11 Mistakes to Avoid When Seeking Business Lending

Obtaining funding for your small business, whether it’s established or new, can be grueling and frustrating. Success isn’t a certainty. However, you can improve your chances of securing funds if you avoid missteps.

In my experience, here are 11 common mistakes from businesses and entrepreneurs who seek funding.

11 Common Financing Mistakes

No business strategy. Showing up in a bank with no credible plan will probably kill your chances of getting a loan. It shows you have not done your homework. Equity investors will want to see one too. Having a plan also helps convey long-term targets and your methods to reach them. A business plan should include revenue projections and address what you do better than your competition.

No financial statements. You must submit current financial information. Be honest. You need to account for every dollar that comes in and goes out so you have a handle on cash flow. Have an accountant, not a bookkeeper, prepare your financial statements and involve that person in your funding search.

Going alone. You need at least one spouse. This is a person who, like you, has a financial stake in the enterprise. This individual shares at the decision-making and the risk. He or she is someone to brainstorm ideas together and talk you out of those bad ones. Lenders and investors want to see a team or at least one spouse because if something happens to you they need to understand the company can continue to function.

Underestimating how much cash you require. If investors think you’ve miscalculated the amount you will need to grow, they won’t fund you. Bear in mind that there can be penalties associated with loans and equity investments. Add them into the amount you request.

Not researching potential funders. Lenders or investors have differing standards and criteria. Some equity investors favor certain businesses. Explore which funding sources are perfect for your business.

Taking on a lot of personal debt. Several new entrepreneurs begin by funding their job via personal credit cards, home equity loans, or second mortgages. Other people receive loans from friends and loved ones. These are sometimes good techniques for new business owners to establish a track record to finally show to prospective funders. However, piling up personal debt may damage your credit rating, something lenders consider when reviewing a loan application. And you need to know your credit score before approaching investors or lenders.

Unsure of how to use the cash. Both investors and banks want the money that they inject into your organization to be used to increase revenue, so they may be repaid. Have a clear plan about how you will use their money to accomplish this goal.

Skimping on sales and marketing. Prospective lenders and equity investors both wish to see momentum — a steady growth in sales. If you do not allocate enough funds for marketing and advertising initially, your earnings will stall. That will severely harm your chances of bringing any sort of financing.

Not hiring enough employees. If your company needs a salesperson, hire one at the beginning. You will need to start out strong and show your product or service has a momentum and demand.

Taking the incorrect kind financing. Should you seek control over decision-making to your organization, equity investment isn’t for you. Equity investors will need a part in how your company is run. If you can not live with this, debt is a much better choice; creditors leave the company operations to you.

Waiting too long to acquire outside funding. If you will need to increase the amount of workers, physical space, advertising, or stock, do it fast. Otherwise, your earnings may decline, making your business less attractive later to investors or lenders. A business checking account with a low balance is a red flag for banks.

Funding Sources

Most businesses looking to grow will require outside funding sooner or later. Bear this in mind when deciding how much personal debt to take on in the early stages of operation.

Many more funding options exist today versus only ten years back. That is due, in part, to the merging of technology and fund . Online lenders and equity crowdfunding portals which attract individuals who might never invest before are two unconventional options. With adequate preparation and a good credit score, you should be able to secure financing that best meets your requirements.

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