When you first start up your business, funding is often the first thing on your mind. Do you have enough of it? Should you be applying for a loan? What is the process? In this article, we point out common small business loan mistakes.
Here are 10 common small business loan mistakes:
Not Considering Your Options
The first mistake you can make is to dive into your business headfirst without a plan to fund it in place. Whether you are planning to fund from your own finances, or are looking to take out a loan, all this needs to be considered and weighed up before you get started.
Applying Too Late
This leads to mistake number two. Most businesses only apply for a small business loan when they are desperate for cash. This leaves you with limited time to shop around for the right lender and to consider all your options. By thinking about a loan before you actually need one, you will find the right fit for your business.
Not Getting Advice
No matter what type of business you are starting up or running, it is unlikely that you are an expert when it comes to finances and loans. But there are people out there who are, so let them help you out. This will help you plan properly for your business and ensure everything is being carried out effectively. If you choose to go down the loan route, have a professional on hand to make sure you are doing what is best for your business.
Not Comparing Loans
If you do opt for a loan for your small business, it is important to shop around to find the best option for your business and your needs. Consider both traditional lenders and non-traditional lenders and look at their terms. Make sure you check your credit history first before applying, as this could affect which time of lender you opt for.
Giving Up Easily
Just like you wouldn’t give up on your business after one bad day, don’t give up on a loan after one set back. There are always alternative lenders for you to look into, or you can go back and make sure all your documentation is in place and amend it to give your loan application a better chance the next time around.
Don’t go in blindly when it comes to taking out a loan – instead, be prepared. If you have sought professional help already, you will have a good understanding of what is needed of you to take out a business loan. Have all that information on hand and ready, such as financial records, cash flow projections, a business case and more.
Not Having a Business Plan
Following on from point number 6, make sure you have a business plan in place. Whether you are opting for a traditional lender or a non-traditional lender, neither is likely to take a chance on you without a business plan. Your business plan is essentially a road map for your business and will give you a much greater chance of success.
Applying for the Wrong Credit Type
There are many different credit types you can apply for, so once again, make sure you seek professional help. These can range from secured loans to specialised loans tailored for your business, crowdfunding, peer-to-peer investment, vendor financing and more. You don’t want to rely on a short-term option, such as a credit card, to pay off a long-term loan. Just the same as a long-term loan should not be used to cover short-term needs. Each option has its pros and cons, so it’s important to weigh them up and consider which one is best for you.
Not Offering Collateral
The cost of your loan is directly linked to the amount of risk your business poses to the lender. Having assets you can offer as security will help you pay less for your loan. Consider the pros and cons that come with offering up your home or car as collateral against your business and whether the money saved is worth the risk involved.
Overlooking a Loan
Finally, whether you are a small business looking to expand, or a start-up getting your feet off the ground, don’t be scared about taking out a loan. If you want to give your business its best chance of success, then a loan is a great option for you. As they often say, “You have to spend money to make money”, so having money accessible to your business could give it just the boost it needs.
When it comes to your small business, you don’t want to fall into one of these 10 common small business loan mistakes. Think ahead, plan ahead and get the right advice to ensure you are on the right track to success.