For cash-strapped entrepreneurs, the decisions around financing are important ones. However, when you’re already stretched for time, it can be a challenge to navigate the long road to actually having an influx of cash in the bank. When deciding which financing option is best for your company, it’s important to remember that your decision has the potential to affect almost every area of the business. If you need to, consult an expert. Don’t let your small business fall victim to these common financing mistakes.
Not Knowing Your Options
Financing options for small businesses go beyond the traditional bank loan. Things like government grants, award programs, and crowdfunding all have the potential to finance a business. Using alternative methods for raising capital may mean being more creative, however, you could also be able to acquire some funding that doesn’t need repayment. (Read our 5 Alternative Strategies for Start-Up’s blog post to learn more about different small business financing options.)
Not Reading the Fine Print
When borrowing money, it often comes with additional fees, such as application fees, contract fees, administrative fees, and more. In some cases, those fees are only mentioned in the fine print of your contract. Therefore it’s important to take the time to read everything before accepting a loan for your business. Even small fees can have a big impact on your company over time, and depending on how quickly you pay your loan back, have an effect on your actual interest rate.
Forgetting that Time is Money
When choosing the financing option that’s right for your business, keep in mind the time it will take before your company actually receives any money. Look for lenders or financing options that match the speed at which your business moves so that you can spend your time making money, rather than worry about trying to get it in the first place. If you’re looking to take on additional work or buy inventory, keep those dates in mind to ensure they line up with the timing of your chosen financing method.
Not Forecasting Costs Accurately
If you don’t have a good understanding of your cash flow, you’re hindering your ability to build a strong company. Underestimating expenses is bad for business – and for financing. Miscalculating the numbers leads new businesses to underestimate the amount of financing they need; leaving them either strapped for cash or forced to go through another potentially lengthy financing application process. Therefore it’s incredibly important that entrepreneurs be realistic about potential revenue and the costs of starting a company.
We’ve helped plenty of start-ups and small businesses achieve their financing goals with accurate planning and forecasting. Contact us to learn more.