If you buy a franchise or business, financing it is more or less the same as the business itself that you buy. This is because it is because of the proper capitalization strategy that can make the business grow. “A wrong capitalization of the business can however lead to the opposite, and can even lead to collapse of your business,” said Issa Asad Florida businessman and entrepreneur since 1996. Mr. Asad is the CEO of Quadrant Holdings and Q Link Wireless.
After consulting several entrepreneurs and small business owners, Issa Asad shares 4 big mistakes when acquiring business financing.
1. Making Big Purchases
Making big purchases like buying a home, a car, a boat, jewelry, etc, can create some unnecessary inquiries on your credit report especially if you obtain new credit sources. Big purchases can also create a negative impact on your credit utilization or debt-to-income especially if you pay using a credit source. This can later affect your debt obtaining ability.
2. Failure to Correct Inaccuracies on Credit Report
Many small business owners or entrepreneurs never know that their credit reports have inaccurate information that can negatively affect their credit score. Such errors can significantly delay the process of financing because it takes much time to remove the inaccurate items and this may affect your credit score.
3. Lack of Organized Current Financial Records
Every time you want to apply for a small business loan, most of the lenders will require that you have tax returns for two years, bank statements, your last two pay stubs, personal financing statement and the supporting documentation. If you do not have these financial records ready, the loan processing may be delayed.
4. Online Application of Business Loans
It is important to know that business financing is a bit complicated and therefore the loan solution is not easily found on the web. Online loans are always full of compelling marketing focused on you getting the loan by applying online. If you apply for the loans in different places for example, you will have to receive inquiry from each place because most of the lenders or brokers will always run your credit once they receive your application. Now the disadvantage of this is that the more the inquiries you have in the last six months, the more you have negative impact on your credit score.
Never do the above mistakes. However, below are the four tips you can use to ensure that your small business financing is secure.
1. Avoid Major Purchases
Ensure that you do not make major purchases like homes, cars, boats, etc until if possible, after you have purchased your small business. This is because large purchases may make it quite challenging to have small business financing approval.
2. Organize Your Financial Records Now
Ensure that you gather your personal financial records as early as now for easier and faster accessibility of the capital you need whenever you apply for a small business loan. The information should include personal tax returns for at least the last three years, asset and bank statements for at least three months and any other relevant document.
3. Recognize Financing Needs of Your Business Before Applying
You need to know that even if you do not get a loan, the credit inquiries can still impact your credit score. Therefore, you need to have a view of a complete financing needs of your business.
4. Do a Consultation
You can always consult a specialist in the field of business financing. This consultant should be knowledgeable in a wide range of investment or financing options so that he/she can help you in understanding your financial options and their impact on the forward movement of the business.