The only difference is the way the money will be used (growth, cash flow, replacing equipment) and, of course, the source of the funding.
But before you go asking for small business financing you’ll need to have a solid business plan with a realistic forecast, so you can be absolutely sure about how much money you need and how you’ll pay for it.
This way, the bank or financial institution that lends you the money will be your ally instead of a headache. To make the most of this funding, take note and avoid the 7 Sins of Small Business Financing:
1. Not knowing the company from head to toe
If you are a small business owner, you probably think you know everything there is to know about it.
But the truth is that you could be missing out on stuff like market trends, political influences, or even underestimating your competition because you are caught in your daily operation.
To prevent this from happening to you, always keep an ear on the ground, either with what your customers want or with what is happening out there. This will help you make better decisions so you don’t sin of pride.
2. Overseeing taxes
Incredibly, taxes sometimes get overlooked. And not knowing about your obligations doesn’t excuse you from fulfilling them.
Get in touch with an expert that can explain everything you have to do to pay taxes depending on your business structure, or even create an accountant department within your company.
This will help you not only be up to date with de IRS but also improve your chances of small business financing for your growth plan.
3. Overcalculating your possible income
If you already have a robust business plan, you’ll know what are your short-term goals and how much money you expect to make.
It’s not that you shouldn’t dream big, but when you think about the future, always take into account risk factors that can harm your business income and business-as-usual operations, even if they seem far-fetched. Covid-19, anyone?
4. Overpaying at a cost of your cash flow
A healthy, growing company has “good” debt. That is, money they borrow for taking their company to the next level and, of course, the return of investment that comes from it.
When applying for small business financing, consider that interest rates are already there so paying money you asked for too fast without taking into account your cash flow, could end up leaving you without working capital.
5. Not knowing where the money is going
If at the end of the month your business finances are not squeaky clean and perfectly tracked, you might have a problem.
Pay attention, see what’s costing you more money than it should, and adjust your suppliers, payroll, or those expenses you don’t recognize.
6. Using the money for personal matters
Not having an individual account for the company, or having the petty cash available for you or your family could seriously harm your business.
The same goes for buying personal things or even traveling with the company’s credit card.
7. Not reading the small print
When you are signing for small business financing, you need to read the contract. All of it. It doesn’t matter if you feel pressure for expediting the procedure.
Everything good in life takes time and you have to take yours to understand the obligations and rights.
When you are in doubt…
Do some research and ask. Again, and again. Everything you don’t understand, the term that keeps you up at night, even the smaller things.
Before making a move, make sure you understand absolutely everything because the better you know the company and their product, the safest you’ll be.
In this matter, it’s better to take your time and assess every small detail. And when you do get your small business financing, stay on track with your eyes on the prize: a successful business.