business loans

10 Common Financing Blunders New Businesses Must Avoid

by Josh Biggs in Finance on 21st February 2020

Starting a new business is a complex process in every way possible. From researching to conceptualisation to licensing, there are several steps involved in establishing a business. 

Particularly, financing is an aspect that literally keeps a business afloat. Many ventures fail just because of misjudged financial requirements. When it comes to financing, even a slight oversight can jeopardize all your hard work.

Are you planning to start a new business? In this post, we’re sharing some common financing mistakes that you should avoid. 

Underestimating your requirements

You need to do the work when it comes to estimating your requirements. Approaching investors and lenders with a miscalculated amount will lower your chances of securing funds.  You must come up with a near-accurate amount required to grow your business in the long run.

Relying solely on personal savings

Investing your personal savings is one of the cheapest sources of financing. That being said, you cannot solely rely on your personal savings to fund a new business. Not only the funds are limited, but you’ll also put your financial safety net at risk. At some point in time, you will be required to approach an external source for financing.  For urgent requirements, fast loans are a good option.

Not researching before choosing

From conventional business loans to venture capital, there are several sources of financing available. It would be best to research and consult experts before choosing a source of finance. Don’t go into it blindly, compare the pros and cons of each source to find a suitable one.

Showing up unprepared

Your charm might get you a meeting with investors, but it won’t be enough to win them over. Investors trust solid numbers and facts more than gusto. When you go for a meeting, make sure you prepare a credible plan to back your claims. Showing up without a business plan is a colossal waste of everyone’s time.

Attending meetings alone

While going to a meeting alone might make a bold statement, we don’t suggest doing it. Investors find it easier to trust a team rather than an individual. Take along your business partner or someone else holding a major stake in your business. 

Risking control for funds

Certain financing solutions, such as angel equity and venture capital are attractive when you just consider the money aspect. However, these sources also imply diminished control. You will be relinquishing ownership to investors.

Waiting too long

It would be unwise to wait till you’re running out of funds to seek financing. Waiting too long to finance might push your business to the point of no recovery. Make sure you account for the short-term and long-term funding requirements.

Poor utilisation

Your future ability to finance heavily relies on the current utilisation of funds. Not using funds conscientiously will impact your revenue and impact your reputation. So make sure you’re employing borrowed funds wisely.

Overlooking hidden fees

Before signing a contract for a business loan, always carefully read the fine print. Such contracts include hidden fees that will reduce the amount of actual receivable capital. Make sure you take these hidden fees into consideration.

Partnering with incompatible investors

The amount of money isn’t the only reason to partner with an investor. All your efforts will be in vain if you have to work with an incompatible investor. When getting into business with an investor, make sure you share a vision for the future of your startup.

The Bottom Line

Did you know many businesses fail within the first three years? Taking the right measures to finance your business can significantly improve the odds of survival for your business or SME.

Categories: Finance