As a small business, your ability to secure funding and successfully manage your cash flow is a critical component of your survivability and growth prospects. Acquiring the funds needed to invest in your business can be a difficult task as you will probably have a limited trading history, short credit history and a relatively small asset base to back your application. Furthermore, many banks do not offer many small business solutions, and if they do, they are difficult to access.
Fortunately, there are many funding alternatives offered by non-bank lenders, such as equipment finance, unsecured small business loans and invoice finance. To take advantage of these lenders, you’ll need to put your best foot forward, avoiding many of the common funding mistakes small business owners often make, some of which are terminal to their company’s future. Here are six of the most critical mistakes to avoid and ensure your small business has the best chance at securing the credit you’ll need to succeed.
Not having a clear business model or set of accounts
If you want to secure funding, you need to have your accounts in order. The lender, whether they’re a bank or a trendy fintech startup, needs to have clarity around your business’s future and ability to make the required repayments. You will need to communicate your business plan and strategy, including how you earn revenue from your customers.
“Keep your financial reports up to date to best support your funding application”
In addition, you’ll need the numbers to back it up. Even the least restrictive Low Doc loans require a minimum period of your bank statements to verify your cash flow, revenue and ability to make the necessary repayments. The better your financial reports are maintained, the better you’ll be able to communicate your financial position and demonstrate suitability for funding.
Not planning your future expenses and investments
Before looking to secure additional external capital, you need to develop a detailed and considered plan for how funds will be used. Why do you need funding? The answer should demonstrate how the funds will be deployed to generate additional revenue or enhance the operations of your business. Relying on a poorly thought out approach will not only hurt your application approval chances. You risk blowing the money on unexpected expenses and inappropriate investments, potentially leaving you unable to make your loan repayments and putting your business at risk. Developing a comprehensive budget and capital expenditure plan is a good idea for all small businesses.
Inability to find the right funding product or lender
Unsecured? Secured? APR? Line of Credit? You’re a small business owner, not a finance expert. Small businesses often struggle to identify the right lender and financial product for their unique circumstances. There are many options in the market, so it’s hard to understand which one is appropriate for you. Failing to secure funding when you need it can lead to a critical disruption to your cash flow, limiting growth opportunities and putting your operations at risk. Consider using an experienced business finance broker to compare options, advise on your circumstances and help you secure the right loan terms for your small business.
Not understanding the terms of the loan
While most lenders and business finance brokers will have your interests at heart, funding is not free. Every loan comes with terms, commitments and necessary repayments. A common mistake made by small businesses is to neglect to understand the commitment they are making to the lender. You need to have a clear grasp of the costs, funding term, repayment schedule, facility size and any other relevant facts impacting your use of capital. Additionally, be aware of all of the personal and business liabilities you are already carrying, as this may affect the financing you can secure in future, with the same or other lenders.
Not implementing an appropriate repayment schedule
Your loan repayments should fit your cash flow. If you get paid by your customers monthly, weekly repayments may not be the easiest to manage. Take into account seasonal differences as a slow period may impact your capacity to meet fixed repayments. What about your other expenses? Do you have the cash to fulfil all your outgoing commitments at once?
Certain products, such as a Merchant Cash Advance allow your business to vary loan repayments in line with your revenue (as a percentage of sales). Consider which product, repayment frequency and amount is appropriate for your small business.
Not applying for funding
The last, most critical mistake small business owners make is having a fear of a loan application being rejected. While you should take due care in which loans and limits you apply for, the fear of rejection may prove to be a costly one. Making decisions based on assumptions is not good business practice, regardless of the context.
“If you’re not sure how to proceed, consult an expert finance business broker”
There will almost always be a suitable option for your business, so it pays to consider all the alternatives. If you’re not sure how to proceed, consult an expert finance business broker. They will be able to answer your questions, guide you towards appropriate options and represent your business, maximising the chances of a successful application.
Need further assistance or advice? Get in touch
In uncertain times it pays to sure up your cash flow. An experienced finance broker is your best point of call to discuss your specific situation and financing options. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small to medium business. Please give us a call anytime to find out more or to have an obligation-free chat about your businesses’ funding situation.