Small business owners are no stranger to challenges. One of the biggest challenges is getting funding when they need it. According to the 2018 Small Business Credit Survey, more than half, or 64% of the participating businesses faced a financial challenge in the last twelve months. Considering that 72 percent of these business owners expect an increase in revenue, a lack of working capital can seriously hinder growth.
When it comes to seeking outside financing, the mistakes most business owners make are similar regardless of the size of their business. Securing funding for your business, whether it is new or established, can be stressful and time-consuming and success is not guaranteed. However, you can increase your chances of obtaining funds if you avoid certain missteps.
Here are five common mistakes entrepreneurs and businesses of all sizes make, along with tips on how you can avoid them.
Not Being Prepared
One of the top mistakes business owners make is applying for funding before they are prepared. Of course, each financing option will have different requirements, but there are several things you can do to be as prepared as possible. Start with a business plan and your vision for the company. How big do you want it to be, and how fast are you willing to grow to get there? Having a thorough business plan helps communicate your long-term goals and the methods you intend to use to achieve them. It is also important to have all your business’ financial statements in order. From projections to accounts receivable and cash flow to current and past debts, you have to account for every dollar that comes in and goes out.
Unsure of Why You Need the Money
Before you can determine exactly how much cash you need, you first have to establish why you need the money. Do you need to hire more workers, buy new equipment, increase inventory, purchase supplies, cover payroll, boost cash flow, maintenance vehicles, create a cash cushion or fund plans for expansion? The reason you need extra capital will affect what type of financing is right for your business, and how long you are willing and able to wait to receive those funds. For example, if your business has an unexpected opportunity, waiting too long for funding could cause you to miss out on a chance to grow your business further and faster.
Waiting Too Long to Secure Outside Funding
If you need to add to your team, increase marketing spending, add physical space or purchase inventory, it is important to obtain financing sooner rather than later. You want to avoid waiting too long and having your revenue decline, which could then make your business less attractive to lenders or investors. If you need to boost cash flow, cover payroll or create a cushion of cash, it is even more crucial that you seek financing quickly; you do not want your business to find itself in a dangerous cash-flow situation or unable to manage unexpected expenses.
Applying for the Wrong Kind of Financing
When choosing a business funding option, you must take into account how each one could impact your business. Last year, 47 percent of small employer firms applied for a loan and 43 percent for a line of credit. Family and friends, credit cards, cash advances, and crowdfunding are other highly sought-after options. The problem with most small business funding is that it is time-consuming to apply for, requires seemingly endless paperwork, involves restrictions on how the cash is spent and/or chains your business to a burden of debt. The key is to choose the option that best fits your business’ immediate cash flow needs, without jeopardizing your business's long-term financial health.
Not Knowing All Your Funding Options
The good news is that there is a wide array of financing options available. Thanks to alternative lenders, now more than ever before, entrepreneurs have been able to secure the capital necessary to start and grow their business. In fact, these options have become so attractive that many small business owners seek alternative cash solutions as their first choice. For example, invoice factoring has become increasingly popular for several reasons. Factoring companies can provide cash in as little as 24 hours, the application can be completed in a matter of minutes and the amount of financing available grows with your business.
Security Business Capital’s Invoice Factoring Services
What Is Invoice Factoring?
Essentially, invoice factoring allows businesses to use their accounts receivable to generate cash on hand. When your business decides to partner with a factoring company, you sell your business’ outstanding invoices to the factoring company at a discount. The factor then quickly advances the working capital needed against your business’ unpaid accounts receivable. Because you are being given money your business has already earned, you avoid taking on unnecessary debt.
Security Business Capital has built an experienced and dedicated team of individuals with years of experience in providing flexible cash-flow solutions that help businesses grow. Small businesses, startups, businesses in a turnaround phase and businesses growing rapidly are just a few of the business types that successfully use Security Business Capital’s invoice factoring services. If your business is seeking cash solutions to meet expenses or fund growth, Security Business Capital offers a fast, simple and hassle-free setup process.
To learn more about how our invoice factoring services work, get in touch with us today for a free quote and/or consultation.