Business is murky. Pitfalls right left and centre, especially when looking for financing, makes wearing roast meat flavoured cologne deep in the Serengeti seem like child’s play but all these pitfalls can be avoided simply by avoiding these common mistakes:
Borrowing too much
Credit for business should be well informed and well researched. Borrowing to fuel your business for long periods of time means having sufficient collateral and cash flow to cover the debt, on top of paying high-interest rates which at the end of the day end up slowing down the growth of the business. Borrow what you need based on what you can afford.
Networking less
Making the right connections in business is the sole driver of any venture. Understanding your target market, suppliers, industry peers goes a long way in enhancing perspectives and in turn making better business decisions. Networking always helps in getting the bigger picture of things. Talking to industry peers who have “walked the walk” for example can massively influence your view on acquiring credit or even looking for alternatives that won’t put a dent in your pocket, so to speak.
Ignoring Devil in the detail
When taking out financing you must take into account all the fees involved in completing the credit request. Depending on how quickly you pay that loan back, that fee can have a large impact on the true interest rate you’re paying. Not paying attention to these fees might leave one untrusting of financial institutions and on most occasions, experience a falling out which may give your business some serious whiplash. So before you take out that loan, keep an eye out for administrative fees, application fees, contract fees, due diligence fees by combing through all the fine print before you put your signature on it.
Not getting interested in your interest rates
The importance of understanding how much interest you are paying on your credit facility cannot be downplayed. It is important to know how much interest based on the amount outstanding at every point in time (i.e. the amortized amount) and whether your business’ revenue can adequately handle those rates without defaulting on your facility.
With a better understanding of the factors outlined above, you might find some much-needed shifts in perspective and, a few avenues to save you some much-needed change.