One of the biggest troubles for small business owners today is how to access to the right kind of capital at the right time to start and grow their business. Many first time small business owners make crucial mistakes that makes operating their business in the future very difficult.
Financing a business has its rules and regulations as far as when you should do it and how you should do it. Running down to the bank and getting the first business loan, line of credit, or business credit card you can get your hands on is not the best way to go about it. You want to make sure that if in fact you have to borrower money that you are going to do it for a reason. And saying, “I just need money” is not a reason to borrower money.
When financing a business you must keep in mind the by-products that come along with borrowing money. A good or bad personal credit score, a good or bad business credit score, positive bank account ratings, a positive perception, good cash flow management, etc.
Here are a few do’s and don’ts when financing a business:
Do’s
- Choose a financing option that works best for your business. Just because you can get approved for a business bank loan does not mean you should say yes to one. Think about all the different kinds of loan types out there and decide which one works best for you and your business.
- Before you apply for a bank loan, line of credit, or business credit card, walk into the banks office and ask them what their underwriting guidelines are. If you know everything about you before the bank knows everything about you, you will be way better off.
Don’ts
- When you get your first chunk of change that isn’t a business loan, do not take that cash and put it in a business bank account. Take the cash to a bank that will allow you to open a CD and will give you a one to one business loan on that CD. This will help build your business credit so you don’t have to apply for a business loan on your personal credit in the future.
- Do not…..and I mean do not apply for business financing of any kind until you fully understand the requirements to be approved. Once two or more banks have declined your business loan request, it is going to be very hard to get approved from any other banks.
When thinking about financing a small business just make sure you are out of harms way at all possible points. Banks and lending institutions can be sneaky.
What has your experience been financing a business? What tricks have you learned in the past to get out of harms way when it comes to business loans?
{ 9 comments }
Hey Trey,
This is great idea share. Its a guidelines for do’s and don’ts when financing a business.
Thank you very much. It is crazy the kind of simple mistakes small business owners make. Their lives could be so much easier if they just did a bit more research on what they are trying to do.
yeah…your right! when in comes to a new business, it needs to do more research before going to an actual. Planning and research is more effective to a very good business.
Hi Trey,
Great points on financing small businesses! Many times, I see this happening where small business owners don’t do enough research or even assess the loan process that they are going through. Just today, I had one such situation where the client is now is such a position that they could end up losing everything.
People, take our advice, do you research and assess risk and determine if it’s just a quick fix or for long term solutions.
Karlene
Thank you for your thoughts. Its very true. Small business owners often times do not sit back and truly think about the repercussions of financing their business without doing any kind of research before hand. I promise all you small business owners. If you do your research and find the best way to finance your business, the pain in the future will not be so bad.
i agree with you Trey…still need to conduct more research before putting up things in actual specially on a new business need to set up. There are a lot of things to consider specially on financial matter.
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Quite informative post for small business owners. The best financing options for samll business are Debt Financing via financial institutions, grant through the Small Business Administrations, equity financing and angel investors.
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This kind of information should be readily available from sources such as local councils and banks. It’s things that people seriously need to think about before making such big decisions. Obviously for banks though, it wouldn’t make financial sense to offer this useful advice to consumers! Great info though, thanks.
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Great Page, I have just started my own busines online and feel I have so much to learn! I found all the above extremely informative and helpful and will be bookmarking it for sure for future reference!
Thanks,
Laura
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