Business Financing

The 5 “Do-Nots” of Business Financing

No matter what type of business you are operating, you will inevitably need financing at some point or another. Whether you opt for a traditional business loan from a financial institution, seek out investors or secure an alternative financing solution, additional funding allows you business more opportunity moving forward. With more capital at your disposal, you will be able to take advantage of new opportunities, improve your business processes, invest in essential tools like invoicing software/project management tools and hire a team that can deliver for your business. 

When you are securing business financing, it’s important that you take the time to consider your options carefully. There can be potential downsides to financing and it’s all-too-easy to fall into these traps if you are not aware of them. Failing to plan in advance and make the right financing decisions can end up doing more harm than good in the long-run. However, with the right approach, you can avoid these common ‘do-nots’ of business financing and secure financing for your business without any issues. 

Let’s take a look at a few common business financing pitfalls to look out for.

Don’t Wait Until It’s Too Late

It happens all too often that business owners wait until the very last minute before they seek financing. If you are in a position whereby you need access to financing quickly, you will have fewer options available and those options will typically not be very attractive. This is because most institutions that are willing to provide reasonable rates will often have an extensive approval process, which will often require a considerable amount of time before you actually receive your financing. Although it might seem counter-productive to apply for financing when you don’t need it, it will be much easier to secure more favourable financing if you approach a lender in a stronger financial position.

Failing To Consider Cash Flow

Depending on the terms of your financing, you may need to make payments on a more, or a less, regular basis. Having enough cash flow available to meet these payments is crucial in ensuring that you don’t incur penalties or late payment fees. Business owners who fail to consider their cash flow can quickly find themselves with more debt than they may have intended. 

Not Accounting For Hidden Fees

As with any business document or contract you sign, you need to be sure that you read the fine print. Make sure that you have considered all of the hidden fees so that you can calculate how much cash you need to have available to make your payments on time. The last thing you want is to find out that your repayments are more than you expected when it comes time to pay back your loan. 

Utilising Multiple Sources of Financing

While securing multiple sources of financing can work out well in some situations, typically, it is a good idea to avoid. For example, taking out more financing to cover payments on your existing loan is a sure-fire way to land your business in financial difficulty. Remember if you have an increasing number of repayments to manage each month, you will have less access to funds to use for running the day-to-day operations of your business. 

Securing multiple sources of financing can also lead to you having to pay back more in the long run as interest accrues across different lenders. Simply applying to receive said financing from one provider will streamline your repayment process whilst also ensuring that you know exactly how much you will need to pay back.

Declining To Draft A Business Plan

In order to secure business financing, you will need to present the lender or investor with a detailed business plan. Your business plan serves as a roadmap for your business, outlining your business goals, your financial forecasts and identifies the opportunities for your company in the future. Without a comprehensive business plan, you will find it difficult to secure financing from reputable lenders and investors as you won’t be able to provide a clear roadmap to when your business can comfortably pay back said financing.

Securing financing for your business can allow you to plan for the future of your business with confidence. With more funding available, you can invest in the right team, tools and technologies to help move towards your business goals. Before you seek business funding, be sure to consider your options carefully and take the right approach to ensure you find the right funding solution to benefit your business going forward. 

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