8 Common Business Funding Mistakes and How to Avoid Them

In the United States, the market for loan brokers generates over $23 billion every single year! Despite the pandemic, this market has managed to grow by more than 13% on average every year since 2018! 

Many business plans depend on acquiring a loan or other source of funding for their success. In fact, this is one of the most common reasons that businesses fail. When a business fails to get the funding it needs, it often goes out of business.

It is getting tougher for many businesses to find funding, so it is more important than ever to avoid shooting yourself in the foot while trying to get it. Many businesses commit the same few business funding mistakes and suffer the consequences. Read on to learn all about these common business funding mistakes and how you can avoid them!

1. Applying for Loans of the Wrong Size

Some businesses do get the funding that they need, only to fail, anyway. Sometimes this happens because a business asks for the wrong amount of funding.

Some business leaders are intimidated by the prospect of asking for money. They try to make the process go as easily as possible by asking for as little money as possible. However, there is no point in getting the funding you ask for if it is not the funding that your business needs.

Without sufficient funding, your business may never get off the ground. On top of that, you may not want to ask for barely as much funding as you estimate you will need to survive. Asking for this amount means that even a single unexpected expense can lead to financial ruin.

On the other hand, some people end up asking for more money than they really need. The more money you ask for, the more justification you will need to give for that ask. It is best to aim for a safe middle ground.

Ask for as much money as you need plus a little more in case of unexpected costs. Asking for too much more may mean not getting anything at all.

2. Selling Too Much of the Venture

Some companies try to compensate for asking for a lot of money by selling away a lot of the company. However, succeeding at this strategy may not be much of a success at all. Even if you get the funding you need, you may find that you regret giving away so much of the company months or years down the road.

Giving away more of the company should be a plan you only resort to when all else has failed. Make sure to consider your other funding options before selling company ownership!

3. Ignoring the Company Credit Score

The better your credit score is, the easier to get a loan. That applies to businesses as much as it does to individuals. As a result, you might think that more businesses would focus on improving their credit scores.

However, many business leaders ignore business credit scores until later on. Putting together a plan to increase your company credit score can make finding funding much easier. You might even be able to give your credit score a quick boost if you have any debts in collections that you can pay off.

In other cases, just having a plan to improve your company's credit score can help convince investors to provide you with the funding you need.

4. Raising Money at the Wrong Time

A lot of ventures end up asking for money sooner than they should. Then they wonder why the success rate for funding acquisition is so low. If you think that you will not get the funding you are asking for, you might be asking for it at the wrong time.

Consider giving yourself a few more months to make investing in your company a more attractive prospect. The more work you put into your company's success, the easier it will be for investors to trust you with their funds.

5. Focusing Only on Monthly Loan Payments

Some business leaders focus only on the short-term and how much they will have to pay back on a business loan each month. However, it is essential to also look at the long-term costs of any loans that you consider. You might find that some of the loans with the best monthly payments have the worst loan terms in other ways.

6. Treating All Investors the Same

The more you understand your potential investors, the easier it will be to persuade them to fund your venture. However, that is impossible if you don't know anything about them.

Never prepare a generic way of asking for funding. Make sure that you tailor each funding request to the specific person who listens to that request.

7. Creating a Business Plan Without Backups

Your business plan should be persuasive enough on its own to interest investors in funding you. However, having backup plans ready is a powerful way to reduce risk. In some cases, showing your investors your backup plans can help persuade them that you have done your due diligence.

8. Ignoring Business Funding Options

When asking for funding gets tough, some investors resort to selling company ownership right away. However, it is better to consider all of your options before doing anything drastic.

If necessary, it can help to get in touch with services that specialize in helping businesses find the funding that they need. They may be much more familiar with the variety of funding opportunities available for businesses like yours.

Avoid the Most Common Business Funding Mistakes

With so many people committing these common business funding mistakes, finding success is sometimes as simple as avoiding them. We hope that learning more about these errors will help you improve your own plan for securing business funding in the future. As long as you keep learning and using the resources available to you, acquiring funding should get easier with time.

To learn more about how to find funding for your business, reach out and get in touch with us here at any time!