10 Common mistakes when sourcing funding

Making the decision to look for additional funding for your business is not one to be taken lightly. There are a number of things you need to consider before you even begin the process. We will explore 10 common mistakes business owners make when seeking funding. Avoiding these mistakes will help ensure you get the best possible financing for your business.

10 Mistakes to Avoid

  1. Not being prepared.

One of the most common mistakes business owners make is not being prepared. Before you start looking for financing, you need to have a clear idea of what your company vision is and how much capital you need. You also need to be aware of the different funding options that are available. Not being prepared will make it more difficult to get the financing you need and could end up costing you more in the long run. By having the right information to hand, you can save yourself time and money.

  1. Not having a financial plan.

Another mistake business owners often make is not having a financial plan. Your financial plan should include the current position of the business in terms of the company balance sheet and profit and loss account and should also ideally include projections showing how the finance required will impact the future position.

A cash flow forecast should also be presented showing that you have thought about the ongoing liquidity of the business. These documents will help potential lenders understand your financial situation and give them confidence that you will be able to repay any finance they extend to you. Without a financial plan, it will be more difficult to get the financing you need.

  1. Not having a budget.

A budget is another important tool that will help you secure financing for your business. Having a budget will show potential lenders that you have a clear understanding of your expenses and income. It will also help them understand how you plan on using any finance they extend to you.

  1. Not knowing your credit score.

Your businesses credit score can have a major influence on many traditional lenders who will consider this when determining whether or not to extend financing to you. If you don’t know your credit score, then you won’t know the position the lender may be taking or be prepared to counter the reasons behind any detrimental score. It will therefore be more difficult to get the financing you need. You can obtain your credit score from a number of different sources, including credit reporting agencies and online credit monitoring services. Your clients credit score can also be considered with invoice financing services, such as invoice discount and factoring.

  1. Not knowing your funding options.

There are several different funding options available for businesses and enterprises. Before you start looking for financing, you should familiarise yourself with the different options that are available, such as small business loans, business grants, credit cards and invoice finance solutions.

  1. Not shopping around for the best rates.

Business owners often make the mistake of not shopping around for the best financing terms, and accepting the first offer they receive. It is important to compare rates and terms from a variety of different lenders and if possible, look at the APR (Annual Percentage Rates) which should include all costs associated with the funding. Don’t simply look for the cheapest headline rate, ask whether there are any hidden charges. You do not need to search alone, you can use a reputable broker, or a specialist who knows the market.

  1. Sourcing too much money or too little.

Another mistake business owners often make is sourcing too much money. When you’re looking for a loan or finance, it’s important to request the amount of money you need. Accessing more than you need will increase your monthly payments and could put your business in a difficult financial situation. However, on the flip side accessing too little, either because it was all you could get, or you were too conservative can cause just as many problems and lead you to an urgent cash shortfall.

  1. Not using an Accredited Lender.

When you are looking for business financing, it is important to use an accredited lender. There are several lenders that claim to offer business loans and financing, but some of these are not accredited by UK Finance or FCA (banks). Using an accredited funding provider will help ensure you get the best possible financing for your business.

  1. Not reading the fine print!

When you’re taking out a loan or finance agreement, it’s important to read the fine print carefully. Not doing so could result in you paying more interest than you need to or agreeing to terms that are not favourable to your business. Be sure that you understand if there are any additional fees, and when they are due.

  1. Not being willing to negotiate.

Many business owners are not willing to negotiate when it comes to financing. They assume that the terms of the financial agreement are set in stone, and that there is no room for negotiation. However, most financers are willing to negotiate the terms, especially if it means getting your business as a customer.

These are a few of the common mistakes business owners can potentially make when seeking additional funding. Avoiding these mistakes will help ensure you get the best possible financing for your business. With the right financing in place, businesses can grow to the next level.

Seek professional advice

If you’re unsure about where to start when seeking funding options, you can gain advice from a qualified professional, such as an accountant, broker or Insolvency Practitioner (if needed). A lot of business funding works on an introductory basis. With their help, and connections – you can find the right funding option, at an agreeable rate for you, and your business.

Are You Looking for Additional Funding?

At Partnership Invoice Finance we have invoice finance options available for start-ups, small businesses, and established enterprises. With our funding solutions, small business owners can get the working capital they need to grow and expand their businesses.

We offer invoice finance to start-ups, SMEs, and enterprises funding up to £1,000,000. We provide the funding, and with recourse factoring we manage every aspect of your credit control saving you time.

Invoice finance is an extremely helpful tool for SMEs that are facing cash flow issues and those who wish to grow. It is more flexible than most other types of borrowing, giving you access to money when needed the most. Factoring isn’t just an excellent source of finance for businesses, it’s a way to bring stability to a business (and ensure that credit control doesn’t fall through the gaps).

The benefits of invoice finance

Businesses can release around 80% of the value of invoices within 48 hours, and receive the balance (less fees) when their customer pays.

Invoice finance can be used even if you’ve been previously rejected from the bank, might not be considered creditworthy, or have only recently started trading.

Competitive pricing.

Helps you bridge the gap between invoicing the end customers and receiving the final payment.

Helps manage peaks and troughs in cash flow as your business grows.

Invoice finance is a viable low-cost finance solution for growing businesses.

Contact us for more information on invoice finance, and how we can help your business grow sustainably.