Applying for funding as a small business is not always a straightforward process. In some cases, the response time is too long or the funding you need is not available. Typically, funding institutions have many requirements for applicants, meaning there is little to no room for error. When applying for funding, there are certain mistakes you need to avoid.
Funding as we all know, is used to define the provision of capital to a business. For new or small businesses (startups), the capital allows them to bring their business idea to realisation.
As much as there is an access to funding problem for small businesses, there are also a few exceptions where the applicant has made an error within their funding journey. These errors can be costly and eventually lead to the funding application being rejected.
In this article, we let you know what mistakes to avoid when going on your funding journey.
Top 8 Mistakes to Avoid in Small Business Funding
The below list contains common funding mistakes and solutions on what you need to prepare before, during and after you go on your funding journey. Remember, tailor your funding plan so that it fits your business and always be prepared.
Mistake 1: Applying for Too Much or Not Enough Funding
The worst mistake you can make is not applying for the right amount of funding. Applying for too little funding means you will be short and won’t be able to pay for resources that will allow your business to grow.
On the other hand, applying for too much funding can be a problem. If the funding comes from a private investor, they will want to see results quicker than normal.
If you apply for a loan or government funding, the pressure is on whether you can pay back the money (if needed).
Mistake 2: Not Enough Research
Much like anything else in business, you require thorough research. You need to research everything from different funding sources to all the different requirements. Understanding the specific requirements, eligibility criteria and application processes will ensure your application is flawless.
Take time to research different funders and what types of businesses they typically support. Customise your application to fit the specific funding requirements to better highlight how your business aligns with their objectives.
Mistake 3: No Supporting Documents
Having an application with incomplete or missing documents is a common mistake. Make sure that you attach the necessary documentation such as bank statements, business registration documents and financial statements to your application.
Preparing these documents in advance and triple-checking their accuracy and completeness will demonstrate your professionalism and increase your chances of getting funding.
Mistake 4: Importance of Cash Flow Management
Funders are aware of the importance of cash flow management in the long-term success of a business. If you don’t demonstrate a good understanding of your cash flow and how you plan to manage it, it raises concerns about your ability to repay loans and generate sustainable returns.
Leverage technology tools for cash flow management to ensure that you have a detailed cash flow analysis. This will show lenders/investors that you have plans to manage your income and expenses and maintain a healthy financial position.
Mistake 5: Ignoring Application Guidelines
In some cases, funding applications have strict guidelines, especially government grants. There are a range of documents needed and sometimes a funding proposal which has to be detailed and comprehensive.
If your application does not follow the guidelines, chances are it will not be accepted. Make sure you read and follow all the instructions to improve your chances of qualifying.
Mistake 6: Ignoring your Credit Score
Your credit score is a vital feature of your business especially when it comes to applying for funding. In some cases, lenders will consider both your personal and business credit scores when looking at your funding application.
Leverage the services of credit reporting agencies to see if your business has a good credit rating. If your credit score is low, chances are lenders will not give you money, so you will have to look at how you can improve it.
Mistake 7: Not Considering the Need for Collateral
Business loans can be secured or unsecured. When you apply for a secure loan, you need to have collateral in case you can’t repay it. Additionally, collateral can offset a not-so-good credit score and help you get a lower interest rate.
Look through all the assets you have in your business and decide which ones you could use as collateral. Business assets include inventory, real estate, equipment or outstanding invoices.
Mistake 8: Waiting Until the Last Minute to Apply
When running a business, you need to have projection plans for your finances. This will help you avoid applying for a loan at the last second. Some loans take weeks and months to approve so you have to apply before the need for funding becomes significant.
If you have ambitions of expanding your business, develop financial projection plans and start to research (different) financing sources early on. Also, always make sure you have a plan A, B, C, D and E. This will ensure you have a backup just in case your initial plan didn’t work.
When looking for funding for your small business, avoid the above mistakes to ensure your application is not rejected by any lender or investor. Remember, there are many types of funding available, so do your research, prepare and apply today!
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