Do you want to apply for business financing successfully? Read on!
Securing financing for an existing business can be frustrating. You have no guarantee your application will sail through. Essentially, avoiding some of the common blunders committed by entrepreneurs could guarantee success. Here are ten mistakes you should avoid when applying for business financing:
1. Setting off Without a Business Plan
Having a business plan increases your chances of securing business financing. It demonstrates clearly to a lender that you have a credible plan to grow your business. It should include your long- and short-term goals, and how you plan to achieve them. Your business plan should also show the revenue projections for your business and a strategy on how you plan to compete and secure a sizeable market share in your niche.
2. Lack of Current Financial Data
Submit your current financial statements to demonstrate to prospective financiers how cash flows in and out of your business. Most lenders want to see evidence of a business with a healthy cash flow. Without a financial statement, your chances of securing financing are very slim.
3. Seeking a Loan Alone
A partnership assures business continuity. Financiers want certainty that your business can continue without you. However, if you are the business and the business is you, lenders will be very cagey about granting you a business loan. Get a trustworthy partner and approach the lender as a team. This gives the lender confidence they are dealing with a real company; not a lone ranger enterprise.
4. Underestimating or Overestimating Needed Cash
Underestimating how much you need to borrow lowers your chance of securing financial support for your business. Be specific and accurate on exactly how much you need and avoid overestimating or underestimating. Either of these could leave you in worse financial trouble, even if your application sails through. Factor applicable fees and equity investment on the requested loan as well.
5. Failure to Research Potential Financers
Failure to research the ideal lenders for your type of business affects your chances of securing a loan. Find out the type of lenders most likely to consider lending to your business. Get to know their standard requirements and stipulations before filing an application.
6. Poor Personal Credit Score
Nothing demonstrates ones financial indiscipline to a potential lender than a bad credit score. Your business loan application stands a better chance if you have a good personal credit score. The way to a good credit score is paved with financial discipline and a history of avoiding bad debts.
7. Lack of a Clear Plan on How to Use the Loan
Not having a clear plan on how you plan to spend the borrowed funds jeopardizes your loan application. Clearly, demonstrate how the loan will result in increased revenue for your business. This assures a lender your business is solid enough to pay back the loan and the stipulated interest.
8. Underspending on Marketing and Sales
Every lender and equity investor want to see a progressive rise in sales. Not allocating enough funds for marketing tells them you are not serious about improving your sales. To the contrary, your sales will actually decline. To demonstrate seriousness about your business, allocate enough resources to marketing and advertising.
9. Procuring the Wrong Type for Financing
Going for the wrong financing is another mistake entrepreneurs make. For instance, equity investors demand involvement in all your business decision-making. If you want ultimate control, don’t go for equity investor financing. Instead, get a business loan from a lender and they will leave you to run your business as long as you do not default on your payments.
10. Taking Too Long Before Securing Funds
Taking too long before securing a loan in spite of an obvious need to do so adversely affects revenues. If your business needs financing, don’t hesitate. Approach a lender immediately to keep revenues from declining.