Common Financing Mistakes Small Business Owners Make

Most small businesses need extra cash at some point, and a loan is often the quickest way to obtain it. To ensure that you get the money you need, avoid making these common mistakes when seeking financing.

Being Ignorant of Options

Today’s small business owner has a broad range of financing options.

Banks aren’t the only place to get funds and going directly through them isn’t always the best choice. Alternative lending solutions exist to help you obtain affordable loans that can be approved much faster than a bank.

Here at ARF Financial we can offer a Working Capital Loan or Line of Credit of up to $500,000.

Our business loans are brokered through FDIC-insured community banks and as such the interest you pay is tax deductible and your payments are fixed. 

Unlike cash advance companies or other short-term lending options the business loans obtained through ARF Financial are regulated by the government since they go through a real bank. When you choose to take money from a cash advance or other short-term lender you often end up paying predatory rates because the cash advance industry is unregulated.

Research the choices available to find the method that best suits your situation.

Misunderstanding Interest Rates

Interest rates aren’t as cut and dry as they seem. To understand what percentage you’re really paying over the life of a loan, you need to consider the initial amount, how much is left to pay off each time you make a payment and how long a period you’re taking to pay everything back.

What seems like a low interest rate may in fact be much more than advertised when all of these factors are taken into account. Understanding true interest rates is essential for budgeting the right amount of funds to pay off the loan during the projected period.

Not Researching Fees

Fees can make up a significant percentage of the total cost of a loan. Find out the exact amount of extra fees associated with the loan you’re seeking, add them up and compare them to the total amount you’re borrowing.

Consider this along with the interest rate when deciding whether or not it’s worth it to take the money. You don’t want to wind up in a situation where you need to use so much of your revenue to cover the fees that it negates the benefits of getting financing in the first place.

Lacking Clear Financial Statements

When seeking most bank loans, you need to have all of your company’s financial information in order and ready to present to the lender:

• Balance sheets
• Profit and loss statements
• Cash flow projections
• Tax information

Include a statement of why the loan is necessary and what you plan to use the money for. The purpose of all this is to prove you’ll be able to pay back whatever you borrow and instill a sense of trust between your business and the lender. It also gives you a better idea of how much money you actually need to achieve your goals so that you don’t seek to borrow too much.