Keeping money coming into a business is one of the hardest parts of staying open. You have countless expenses, have unexpected situations, and need to be able to take advantage of opportunities. That's why it's no surprise that 33% of small businesses fail because of a lack of capital.
If you want to avoid running out of cash, you need to learn how to find great business financing.
Do you want to learn a few mistakes to avoid when tracking business finances? Below are four common small business financing errors you must avoid.
1. Not Applying for Financing
It's no surprise if you want to avoid borrowing money to run your business. You don't want to go into debt, so you try to be as financially responsible as possible to avoid debt.
But at the same time, borrowing money isn't always bad for a business. There may be future opportunities that require cash to take advantage of the opportunity — and you'll need financing to make that happen.
Don't wait to apply for financing to be able to take advantage of opportunities in the future.
2. Ignoring Your Credit Score
You don't hear about it much, but your company has a credit score. A small business loan provider needs a way to gauge how trustworthy your business is when repaying loans. If you have no credit score, you have no proof that you're trustworthy.
That's why it pays to develop your credit score early. You can get a few small credit cards and put different business expenses on them. Pay the bill every month, and you'll see your score go up.
Do this enough, and you'll have a better score — along with the ability to borrow more cash.
3. Picking the Wrong Type of Loan
While you may be able to get away with a regular loan when looking for financing, standard loans won't always be the right fit. There are different types of loans for different situations.
Take a scenario where you're stuck waiting for customers to pay invoices. You can use those invoices as collateral to get accounts receivable loans.
Another situation is when you want to buy equipment. There are equipment loans available that allow you to use your purchase as collateral to help you get better rates.
4. Not Shopping Around
A big mistake many companies make when looking at business financing options is not shopping around. Business owners have a lender they prefer, so they only get loan information from that lender.
This can cause you to lose out on excellent loan terms. Before you apply for a loan, look for the other lenders in your area. Reach out to each of them to learn what terms they can offer.
This will help you discover great lending deals worth taking advantage of.
Watch the Common Small Business Financing Errors
Financing is something you want to get right with your business. You can't always count on your cash on hand and cash flow to hold you over when you need cash. You never know when things will come up that require more money than you have available.
The good news is there are many small business financing errors you can learn about before you make them. Avoid the errors above to create a good business funding strategy.
Do you want to learn more about managing your company's finances? Check out the business section of the blog to learn more.