Key Mistakes To Avoid When Getting Financing for Your Startup

Starting a business is stressful but exciting. However, no matter what industry you’re in, you’ll need to have enough money upfront to bring your vision to life. There’s more to figuring out startup financing than meets the eye and making even a single mistake can derail your progress and keep you from opening on time. Here are a few of the most common mistakes you’ll need to avoid at all costs.

Not Borrowing Enough

One of the most common issues business owners face when looking for loans and financing is underestimating how much they really need to run their business. Before you apply for a single loan, take a long, hard look at your estimates. Think about how you’ll use the money and make a note of how much money you really need. If your estimated costs and expenses aren’t set in stone, err on the side of caution and request a larger loan. This way, you’ll have the money you truly need when you need it.

Not Looking at Alternatives

Though business loans are the most common way to finance a new company, they can be hard to qualify for. Remember, lenders want to see a proven profit history before they’re willing to issue you a loan. Instead of hedging your bets with lenders, look for alternative financing options. Consider working with investors or take on a business partner who can share the financial burden with you.

Relying on Personal Savings and Credit

When money is tight for your new company, the temptation to use your personal savings or credit cards is very real. While you can use a portion of your savings to grow your business, you should never rely on it completely. You still have personal expenses and draining your savings or racking up thousands of dollars in personal credit card debt will ruin your financial situation and make it harder to qualify for loans in the future. Use caution when using your personal savings for your business and only use the smallest amount possible.

Not Having a Clear Business Plan

The best way to make lenders take notice and to attract qualified investors to back your company is to create a clear and detailed business plan. This plan is an outline for how you’ll run your company, what services you provide and how you’ll repay any financing that you receive. Take the time to draft one up if you haven’t already.

Avoid making these mistakes when trying to get financing for your startup. When you do, you’ll be in better shape.