Are you finally going to launch that comic book store? Are you trying to expand your specialty tea shop? Are you interested in hiring a marketing team? What about other staffing options?
If these are questions you find yourself asking from time to time, then perhaps it’s time, consider financing in the form of small business loans. A line of credit or a lump sum of cash, a small business loan is the one way to launch a company or expand operations.
Of course, prior to submitting a small business loan application your bank, you need to ensure you’re not making some of the more frequent errors that can negatively affect your chances.
Here are five things not to do when getting small business loans:
1. Not Putting Together a Comprehensive Business Plan
One of the most common mistakes that potential entrepreneurs make is that they have an idea, they have a vision of making a lot of money, and that is it. This gets them excited, but then they will often let go of the idea when it requires a little bit of hard work.
Unfortunately, this is why so many businesses fail or cannot obtain the necessary funding to continue.
Before you invest a single penny in your startup, it is important to establish a comprehensive business plan. The business plan should go over all the basics and specifics of your future company:
- Product or service.
- Operating costs.
- Overhead expenses.
It is these details that matter the most to starting your business and moving ahead with it.
2. Not Knowing How Much You Need
Any small business owner would love to have a general fund that contains an infinite amount of cash. This would allow you to do anything you want: sell at below market value costs, invest in lavish properties, and turn away customers just because you don’t like the look on their faces.
Only in your dreams…
When you’re combing through the financial market, it is essential that you know how much money you need in order to establish a full-scale business or to expand your firm.
And, you can’t just estimate or guess. You need concrete figures: $5,000 to $50,000 to $500,000.
3. Not Maintaining a Respectable Cash Flow
You have a business already, but your primary problem is a paucity of cash flow. Because you are not generating enough revenues, it can be incredibly difficult to stay in the black or see green.
If you are routinely in the red, taking out overdrafts, and relying on your own savings to get by, then not a lot of investors would want to work with you.
By not maintaining a respectable cash flow, you emit several messages to potential lenders:
- You’re not very skilled at balancing the books.
- You’re not doing a good job at running your business.
- You’re not attracting customers to your product.
- You’re possibly flushing money down the toilet.
Before you apply for small business loans or you seek out venture capitalist funding, then you need to start doing a better job at managing your finances.
4. Not Having Any Skin in the Game
So, you want to use the bank’s money to fund your business. Great. But what about you?
It’s your business, it’s your livelihood, it’s your baby. Yet, you have very little skin in the game. Why should anyone touch your business with a 10-foot pole if you’re unwilling to invest some capital?
Again, like the cash flow issue, not having any skin in the game could possible send the wrong message, particularly that you do not have faith in the company. This is the worst message to convey.
5. Not Checking Your Credit Score
Finally, if you’re searching for a line of credit or a lump sum small business loan, then you need to first check your credit score. If you have poor credit, then it’s highly unlikely a bank or angel investor will dump cash at your feet and put it all into your business.
In Canada, you do need to pay for a credit report, but it’s money well spent. You can determine if your credit is great or you can find out if there are any discrepancies that need to be rectified.
Whatever the case might be, you need to check your credit score before applying for a small business loan. This will save you a lot of time – and grief.
So, you’ve contracted the entrepreneurial bug, huh? Well, good for you.
As long as you know the dangers of being a business owner – a lot of hours, a lot of stress, a lot of working lunches – then this can be a fulfilling endeavour for you and your family. Whether you’re just starting a business or you’re looking to expand your private enterprise, you may need to look into applying for a small business loan.
Just avoid these mistakes and your application should be a successful one.