Let’s get it out of the way right now. We say 5 mistakes, but there are more. Don’t shoot the messenger. Part of the reason we post our blogs & vlogs is to raise awareness that financing doesn’t have to be as difficult. Don’t get us wrong, it can be a long process, but you have more control than you think.
These are the top 5 mistakes we’ve experienced with business owners when they are seeking financing.
1. Thinking the Bank knows everything about you. You have all, or most, of your accounts with your local bank, including your operating account, savings, personal account, maybe even merchant services & payroll. It’s easier to bank in one place. You think the bank maintains a detailed file on your financials, that they know how much revenue passes through your accounts every month. This would be an incorrect assumption. The bank will still ask you for your full set of financial statements and much, much more.
2. Old Financials. A business plan that’s five years old won’t fly. If you’re updating your Accounts Receivable aging report or your Profit and Loss statement on an infrequent basis, you will have some work to do and this most certainly will delay the process. You control the timeline when you apply for credit financing. Having updated documents at the ready lets you submit them with all speed and alacrity to move your financing request along.
3. Incomplete Financials. No business plan? Many businesses don’t have one whether it’s a new business or an existing business. There are many, MANY financial forms that a lender will require. It will be your responsibility to provide complete, comprehensive information that many businesses, unfortunately, do not have easily accessible. Lender’s will have a debt schedule form and if this is inaccurate, it will slow down the process and delay your approval.
4. Too Busy, Too Rushed, Too Overwhelmed…Too Late. Bad decision-making often arises from lack of time and a local preparation. However, it happens that then you’re faced with a sudden, unexpected need for working capital. This sounds like opportunity, but if you’ve not been minding the store in the meantime, you will be faced with a high probability that you could be without options or very few options if any at all.
Bad decision-making begets more bad decisions by way of choosing financing options that is super expensive and over priced such as Merchant Account Financing (Merchant Cash Advance – MCA), hard money, equity investors, refinancing a personal residence and/or hitting the credit cards. This leaves you vulnerable to a lack of income & profit taking away any joy in running your business. We bet that you didn’t get into business to be broke and stressed out.
5. Failure to Fight. Your Banker wants to make the loan work for you, because they truly value your relationship with the Bank. When you get bad news, don’t take it lying down. Dig in with your Banker—in person whenever possible—and get to the solution-seeking. What do you need to do to flip this decision from a negative to a positive?
We have seen good people who own good businesses make bad decisions. We are truly fortunate and grateful that we have forged many valuable relationships with Bankers & Lenders. They know that sometimes they can’t do the deal, but they value the relationship with their client. If the Bank doesn’t make a decision favorable to your business, that doesn’t mean you should make a subsequent bad decision.
The more proactive and prepared you are, the more options you will have.