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Let’s Do Business
Many SMEs make fundamental errors in their application for business funding. Let’s Do Business Group can help get around that…
Five mistakes small businesses make seeking funding
Most businesses find themselves considering additional finance at some point in their growth journey. However, any number of common oversights can prevent your fundraising from being successful. If you’re considering taking out a loan, it is in your best interest to know what to expect.
To make receiving financial help as easy as possible, Let’s Do Business Finance, start-up and growth loan provider across the Southeast and East of England, has provided some of the most common mistakes we’ve seen over the years and the best advice we can offer to prevent them.
❛❛ Be careful who you’re borrowing from – do thorough research, seek professional advice and compare your funding options ❜❜
1NOT PLANNING THOROUGHLY ENOUGH
To decide whether the big plans you have for your business are practical, lenders need lots of information from you to proceed with your finance application. Having a solid business plan is valuable because it neatly lays out who you are, what you want to do, how much experience you have in your field, who you’re targeting, and much more in a digestible way. Some make the mistake of underestimating the importance of a business plan – but it’s necessary, whether you’re looking to raise funding or not. Not only does thorough planning help lenders to see your business as a promising investment, but the process of writing one also serves to help you identify and address any underdeveloped elements of your vision. Therefore, it serves to give both sides more confidence in the business.
SOLUTION: There are free templates for business plans all over the internet, so find one and fill it in. If you find that you’re unable to flesh it out, it may be worth taking a step back and refining your original idea. Although it might be frustrating, giving yourself plenty of time to sort out solid foundations for your business is necessary. 2NOT ASKING FOR THE RIGHT AMOUNT OF MONEY
Applicants often second-guess the amount of money they will need when asking for financial help. Many ask us for the largest amount on offer. We’re not just being ungenerous if we hesitate to give you the maximum amount – if we don’t, it’s likely either because the amount exceeds what you would need it for, or because we consider it our duty of care to avoid offering more than you can afford.
If your business fell through, then you would then be saddled with more debt. The opposite problem also happens, where people don’t ask for enough to sufficiently cover their costs, which means that they are more likely to struggle from the beginning if they don’t at once become successful.
SOLUTION: Do your homework. If you’re not sure, it could be worth looking up indicative quotes and seeking professional advice before continuing further. Utilise services like ours.
❛❛ Some make the mistake of underestimating the importance of a business plan – but it’s necessary ❜❜
3NOT GETTING THE RIGHT FUNDING FOR THE PURPOSE
You want to ensure that whatever fi nance you’re raising suits its purpose. In everything from hiring a workspace to taking out a loan, there are legal pitfalls and trip hazards that an underprepared person can easily falter on.
If you can secure funding very quickly, it is likely that you’ll have to repay it at an extremely high rate over a very short term. This would be appropriate if it was for the purpose of tiding over cash fl ow (if there was a delay in an important payment, for instance), but if the future of your business relies on this loan, then it could cripple your business further.
SOLUTION: Be careful who you’re borrowing from – do thorough research, seek professional advice and compare your funding options. Let’s Do Business offers loans with payback rates right for the purpose. If you’re unsure of what kind of fi nance to get, our friendly team of fi nance experts can take you through your options. 4 NOT DOING RISK AND CONTINGENCY MANAGEMENT
“But what if...?” You must keep this question in mind when running a business. While we want your business to achieve all its goals, it’s important to be prepared for some curveballs and plan for some common risks.
What if some equipment breaks? Maybe you could make arrangements with the suppliers for quick deliveries if something has to be replaced. What if a key member of staff leaves? What if there is a fire or flood in the workspace? There are insurance options for these circumstances. Risk and contingency management are essential to consider when it comes to fi nance – putting these buffers into place will not only lessen the impact of any unforeseen problems but show your reliability to people who can offer you fi nancial help. 5 NOT BEING REALISTIC ABOUT GROWTH PROSPECTS
When business owners approach lenders in need of financial help to sustain their growth plan, they are generally asked for the last two to three years of accounts as well as cash fl ow and profi t forecasts. When considering an application, a lender needs to ask the questions, ‘Can the business afford to service and repay this loan?’ and ‘what might happen if trading income took a dip for some reason?’
Essentially, your lender needs to assess how realistic your growth estimates are. If you have estimated a spike in growth, you need to show that you have considered any potential obstacles. Lenders like to see that you have considered potential setbacks and will therefore be a responsible person to lend to.
SOLUTION: To set reasonable targets for growth, consider implementing SMART goals, – i.e. Specifi c, Measurable, Accountable, Realistic and Timespecifi c goals. Also, if you have the right documentation and you understand it as a monitoring tool, that will also help you to more accurately estimate your growth margins.
