Luckily you don’t have to go it alone. We’ve done some of the leg work for you with this article, which outlines the top five mistakes business owners make when applying for funding. Grab a coffee and settle in. It could be a wild ride….
#1 Asking for too little (or too much)
Figuring out how much cash you need is probably going to be your number one priority. But this is where many business owners fall at the first hurdle. Borrowing too much or too little each comes with its own set of problems.
If there’s a large cash pot on offer, it can be tempting to take the whole lot. While that might dig you out of hole and leave you with some breathing room with cash left over, it can cause headaches further down the line. That’s because your monthly payments will be higher and could become unmanageable. It also means you may not be eligible to apply for further funding later if something unexpected crops up.
On the flip side, asking for too little money could still leave you facing a shortfall. You might find you’re not able to pay off that tax bill or invest in the new equipment your business desperately needs.
#2 Failing to consider alternative funding sources
In years past, your regular business bank might have been the only realistic source of business finance. Today, there are multiple alternative options out there, so it pays to do your homework. As banks become more conservative about business lending, it’s even more important to shop around.
We know, we know. That’s easier said than done when you’re worrying about how you’re going to meet payroll or dread every knock on the office door. But trust us on this; a little extra time now considering your options can save you a lot of stress down the line.
From crowdfunding to grants, angel investment to invoice financing, familiarising yourself with alternative funding sources can give you peace of mind, and allow you to swiftly move on to plan B if your first choice gives you the cold shoulder.
#3 Not having a plan
Whatever your reason for sourcing a business loan right now, it’s important to have a plan of action to help you move forwards once financing is secured. Whether your need to make up a cashflow shortfall due to late invoice payments, have been hit with an unexpected tax bill or need new equipment, take a moment to think about what happens next. How will you steady your ship after your immediate financial hole has been filled in?
Think about how you can move past your current cashflow problems by mapping out a plan of action. Do you need to consider a new marketing plan for example to drum up new leads? Could a secondary measure such as invoice financing give you a little more certainty to help you manage your cashflow in future?
Getting an injection of funds should allow you some breathing room. Be savvy with that headspace and think about what you might want to change or do differently in future.
#4 Applying for the wrong type of funding
Yep. It sounds ridiculous to suggest that one type of cash is better or worse than another, but that is true in business. With many different funding sources out there, it’s important that you choose the right option. For example, many local councils and industry bodies offer grants to help with business start up costs and for things like research and development, marketing and business growth. A grant doesn’t need to be repaid, so it makes sense to first try for a grant if your reason for needing funding falls into a grant eligibility category.
For other types of funding, interest rates, repayment terms and other considerations such as whether you need to give up a stake in your business to an investor are also important factors. These differences do matter and could make one source of funding much more suited to your business and your immediate needs than another.
#5 Giving up too big a stake
Some types of funding require the business owner to give away a stake in their business to an investor. One common mistake that owners make is giving away too much of their business in return for finance – because they’re in a pickle and need that cash injection, they’ll often accept the investors terms just to access those funds fast.
Once the immediate cashflow issue has been solved however, they’re left with the harsh reality; they’re no longer 100% in control of their business. In the cold light of day when financial pressures have eased, it’s all to easy to have buyer’s remorse and regret giving away such a large stake and control of the business.
Do you need funding for your business?
If you need an injection of cash, Punk Business Loans can help. We don’t expect you to have a perfect credit score. We won’t ask you for a five-year business plan or put you through the wringer with one hundred questions and even longer forms to complete.
We’re not stuffy lenders. We understand the realities of being in business today and won’t make you jump through hoops. You can spend your loan your way, but we’re also here to help. If you want to restructure and write off debt, we’ll roll up our sleeves and pitch in. Whether you’re on a high or feeling down on your luck, give us a call to find out more about our alternative funding options.
