1. Borrowing too late
You may be tempted to finance your expansion projects from your cash flow. But paying for investments with your own money can put undue fiscal pressure on your growing business. You may find yourself needing to borrow money promptly and doing it from a position of helplessness .
“ When there ’ s a sense of importunity, it normally indicates to a banker there was poor planning, ” MacKean says. “ It ’ s often harder to access financing when you ’ re in that position. ”
Solution —Prepare cash menstruate projections for the coming year that take into bill month-to-month inflows and outflows, plus extraordinary items such as plan investments. then, visit your banker and discuss your plans and financing needs so you can tune up the financing before you need it .
2. Borrowing too little
You ’ re right to be careful about how much debt you take on. however, low-balling how a lot a project will cost you can leave your business facing a serious cash crunch when unexpected expenses crop up.
Solution —Develop a cash flow bode for each individual undertaking including affirmative and pessimistic scenarios. And then borrow enough money to ensure you can cover your project, unanticipated contingencies and the work capital required to bring your project to completion .
3. Focusing too much on the interest rate
The matter to rate on your commercial enterprise loan is important, but it ’ mho far from the whole floor. other factors can be precisely as crucial, or even more so .
- What loan term is the lender willing to offer?
- What percentage of the cost of your asset is your lender willing to finance?
- What is the lender’s flexibility on repayments? For example, can you pay on a seasonal basis or pay only interest for certain periods?
- What guarantees are being asked from you in the case of default? Do you have to pledge personal assets?
“ There are qualitative items in a loan agreement you have to think through very carefully, ” MacKean says. “ Some entrepreneurs will skim over the loanword terms and conditions because they think they ’ re just legal slang or standard terms requested by all lenders. But the accuracy is that terms and conditions can differ greatly between lenders ”
Solution —Shop around among fiscal institutions for the most attractive software, keeping in mind the importance of the terms other than the interest rate .
4. Paying your loan back too fast
many clientele owners want to pay back their loans ampere cursorily as possible in an campaign to become debt detached. Again, it ’ south important to reduce debt, but doing so excessively promptly can cost your occupation. That ’ randomness because you may leave yourself short of cash. Or the excess money you ’ ra give to debt reduction might be better exhausted on profitable emergence projects.
Solution —Compare your plan return on an investing to how much interest you ’ ra spare by paying down your lend faster than required. If you expect to earn more investing the money in your business, consider slowing down your repayment pace .
5. Failing to keep your financial house in order
It ’ mho all besides common for busy entrepreneurs to let record-keeping and other fiscal chores slide—with potentially black consequences. It ’ randomness necessity to keep good fiscal records, including year-end fiscal statements. Messy fiscal records can leave you in the dark about how your business is performing until it ’ randomness excessively recently to take corrective action. It can besides make it difficult to approach a banker for a commercial enterprise loan because not only do you lack software documentation, but you ’ ve besides shown a lack of managerial acumen .
Solution —Be diligent about keeping fiscal records and spend the money to hire an accountant. besides, consider getting aid from a adviser who specializes in fiscal management to get your clientele on the right traverse .
6. Making a weak pitch to your banker
You can see how a lot sense your project makes, but you won ’ t get far if you can ’ thymine persuade your banker to get on board. MacKean says excessively many entrepreneurs are unable to distinctly explain their caller ’ randomness commercial enterprise plan, past performance, competitive advantages and proposed project. The result is a polite “ no, thanks. ”
Solution —Prepare your cant and practice it repeatedly. Focus on explaining your business and how you ’ re going to use the money you want to borrow in clear and compelling terms. Remember a big separate of your sales job is persuading your banker to have assurance in your management smarts and ability to build a potent commercial enterprise ( and pay back the lend ).
7. Depending on just one lender
Having a kinship with just one fiscal initiation can limit your options, particularly if your occupation hits a bulge in the road. “ You don ’ metric ton want one lender holding all the cards should something go wrong, ” MacKean says. “ So, just as you would diversify your suppliers or customer base, or your own personal investments, you want to diversify your lending relationships. ”
Solution —Meet with other lenders and consider using different institutions for different types of finance products .
Get more advice to boost your chances of obtaining a commercial enterprise loan by downloading our spare eBook : How to Get a Business Loan .