Top five mistakes to avoid when you need business funding
You must identify the right financing partner for your company
I have listened to hundreds of small business owners and entrepreneurs as they seek capital or operating leases to start or expand a business. There are a few common themes I hear repeatedly.
Your goal in starting or growing your business is to identify the right financing partner and secure the best terms available. Understanding an investor or lender’s criteria and assessing whether your interests are aligned is a critical first step. To increase your chances for success, steel clear of these five pitfalls.
Not having a solid business plan
You can’t imagine the number of small business owners who try to start the funding process, but don’t get anywhere because they haven’t developed an adequate business plan. Be prepared with a complete business plan for meetings with any prospective financing partners, including sales projections, profit margin models and a full financial summary. This type of preparation can not only speed-up the process, but increase your odds for securing financing.
Not having enough market research
Having an ample amount of market research is one of the best ways to alleviate concerns from potential financing partners, and demonstrate that you have a solid grasp on your market sector. A basic business plan should cover competitors in the industry, customer demographics, trends in consumer behavior, and any projections for the industry. Business owners who have researched the market and are able to communicate the viability of their business will secure funding more often.
Not sharing your financials
Credit history and company financial information are paramount to the decision-making process. But for small businesses or start-ups, there may not be sufficient financial history or credit profiles established. In this case, financing entities may choose to look at the business owner’s personal financials to establish a basis. Be prepared with personal financial documents, as well as any shared assets or other ventures you are invested in.
Anticipating a low lease rate
Rates are typically higher for small businesses and start-ups that lack long-established credit and financial history. Some entrepreneurs are surprised that lease rates can be in the mid-teens for start-ups, when they are often advertised as lower when geared toward mid-sized or large business structures or small business that are well-established. Seek rates from several sources and consider that your personal financial history and credit profile could help lower this rate.
Not doing your homework
Most funding sources have a set of criteria for the types of businesses that they are looking to invest in or lend to. It’s critical to gain as much information as possible before a pitch, call or meeting with a potential funding or financing source. I recommend that business owners research all financing options in the marketplace and inquire about comfort level for risk tolerance new business ventures. Never be afraid to ask as many questions as possible to determine if the financing company will be a good fit for your needs and a suitable partner for your business.