While small business financing can be seen as an aid to growing your business, it can become a threat to your finances if you don’t manage it well. Applying for a loan that exceeds your income and not paying attention to the conditions are mistakes that you should avoid. To access a loan, your company must be formally established and be punctual with payments.
Not Knowing Who You Are and Where You Stand
Before applying for small business financing, you must be very clear about your needs and objectives. Identify what stage your business is in and the financial status. When applying for a loan, the financial institution will notice the level of seriousness that your business has and if it looks solid and professional.
Having Just One Option
There are several legal financing options on the market, in addition to hundreds of investment funds. Do not settle for a single credit solution; study them and analyze which one meets your needs. Some banks could be more given to small business financing than others, so you should review various options until you find the one best suits what you need.
Borrow More Than You Need
Although acquiring a loan implies acquiring a debt, the idea is that you are in the condition and possibility of paying it. Don’t be dazzled by the idea that the bank can give you a lot of money, and be sure to choose a realistic amount.
Choosing a Tight Deadline
If you think that in one year you can repay the loan you have requested, choose to pay it back in 18 months. This will help protect you from any eventualities that may arise and not feel pressured. But remember, you should still try to pay it in the period you had planned.
Lack of Seriousness
If when applying for a loan an entrepreneur does not arrive with the proper documentation and sends it in parts, it can give the impression of not being a very serious company and not complying with its payments.
Not Formalize Your Company
Entering into a formal scheme will help companies to be trustworthy for financial institutions. Otherwise, they will not be able to verify income, expenses, or profits.
Pay the Last Day
Unexpected events can happen any day. Accidents and unfortunate situations can happen at any moment. If any of these situations arise and you do not pay your debt before your cut-off date, you will have to pay surcharges and interest.
Not Working a Financing Plan
Entrepreneurs, sometimes, limit themselves to delivering the required documentation, focusing on the bank’s bureaucracy without deeply analyzing the operation.
The conditions of the operation must be set from the need of the project, not from the bank’s point of view. In this sense, a feasibility study must be prepared, along with an investment and financing plan to support the request, regardless the bank requires it or not.
Take All These Recommendations and Ask for Your Loan
Now that you know all the things you should avoid when applying for your loan, your next application should be successful. Remember that you can apply to different financial entities and that each one may have other requirements. If you do get rejected, take it as an opportunity to refine your next application. This is normal in any entrepreneur’s life, so take courage and start looking for the financing you need for your business.