It’s very easy to make business financing mistakes as a small business, and unlike with larger corporations, it’s much harder to recover from those errors. Here are some of the biggest business financing mistakes commonly made by small business owners.
Not understanding your business credit utilization ratio
A credit utilization ratio is the amount you owe, compared to your credit limit, and it’s one of the first things consulted by a lender when determining your eligibility for a loan. Ideally, you should always be under the 30% threshold for credit utilization ratio.
Forgetting to calculate annual percentage rate
The annual percentage rate (APR) determines the true annual cost of borrowing money. If you fail to calculate the APR and don’t account for it, you won’t have a true picture of what it’s costing you to borrow money.
Failure to investigate denials
One of the biggest business financing mistakes a small business owner can make is failing to investigate why your business was denied a loan. If you take the time and effort to find out what the grounds for disapproval were, you can take steps to overcome that, so you’ll stand a better chance to be approved on your next application.
Overlooking hidden fees
There are usually a number of hidden fees associated with any loan in business financing. One of the most common of these is the origination fee, which is typically 3% or 4% of the total amount being loaned, and this can be a very significant number. Other hidden fees are due diligence, administrative fees, application fees, and contract fees, and all of these can increase the total cost of your loan.
Treating short-term loans like long-term loans
One last major mistake typically encountered in business financing is treating a short-term loan the same way as you would a long-term loan. When considering a short-term loan, the costs which are considered external to the amount borrowed can be the most costly aspects of the loan, and all these associated fees have to be understood and accounted for.
Avoiding business financing mistakes
One of the best ways to avoid business financing mistakes is to align yourself with a trusted business partner such as Skybridge Capital Group. When your business needs financial assistance, contact us first so we can discuss solutions to any business issue you may have.