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Common Mistakes Entrepreneurs Make with Business Funds

Sourcing for additional business capital just got more complicated after the Covid-19 pandemic came into the picture. Some investors were left with no choice but to stop funding. This is after their portfolio went into a hot mess thanks to the crisis. The reality is that everyone is affected by the pandemic but in varying degrees. How can entrepreneurs like you acquire your much-needed business funding during challenging times? Most businesses need additional capital to keep the company afloat. For others, more funds meant the ability to expand their company and foster growth. But then, entrepreneurs often make the following funding mistakes that can only ruin their business plans and goals.

Failure to Explore All of Your Funding Options

One can choose from a variety of funding solutions. Most would apply for small business loans, traditional term loans, and alternative financing. But why only settle on these options when there are other ways to seek additional funding and reduce your expenditures? For instance, claiming capital allowances is one of the most overlooked ways to raise cash and minimize the taxes you need to pay. If your goal is to buy energy-saving equipment for your business, you can claim enhanced capital allowances and enjoy 100% relief during the first year. This usually equates to 19% of cash spent on eligible assets. You can also consider borrowing from friends and family who were unfortunate enough to thrive during the pandemic. There are risks associated with going to your loved ones, including the possibility of ruining your relationship. You can give them peace of mind by writing down a short pitch stating your plans for n how the funding can help the company and how you plan to give back their money. Entrepreneurs should also be open to seeking government support during these challenging times. You can tap on government business-relief schemes and grants as long as you’re eligible for one. Research on available government support in your area, see if your business is qualified for one, and write a compelling grant letter to aid your application.

Choosing the Wrong Legal Counsel (or Not Hiring One at All)

Soliciting funds from investors is not as easy as it seems. For one, there are limitations on what you can sell to raise the money and how you can ask for funds from investors. With all the limitations and restrictions, it only makes sense to get yourself legal counsel to guide you. Another reason to hire an attorney with the right experience in soliciting funds is to avoid signing any documents that can do more harm than good to your company. Analyze the liquidation preference with your attorney before you sign anything.

Sourcing Multiple Loans at Once

team meeting Sometimes, you will find it hard to get your business an investor willing to invest in your business. There are also times when no lender would approve your desired loan amount due to qualification issues. This is when most entrepreneurs and business owners alike tend to stack up on their debts. Loan stacking occurs when one tries to secure multiple business loans from different lenders to raise enough funds for their business ventures. You may be lucky enough to get approved for multiple loans. But this is never a financially smart idea. You may be confident enough that your business will take off and that you can pay off your loans in due time. But how sure are you that no other financial issues will arise before you even get to repay one of your lenders? There is an increased risk of you stretching your resources to keep up with your payments and damage your business credit rating if you default on your loans. Don’t put your company at risk by taking one loan after another. Shop for financing options and find a solution that will best suit your situation. You don’t want to end up losing your business or, worse, be called in to face a lawsuit.

Second-Guessing Your Future Revenue

Some people will do anything to get their business funding. One mistake you need to avoid is guessing your future revenue and presenting an impressive value to impress your investors.  Remember that investors also do their research, and most will not be blinded by your tricky tactics. Be careful when estimating your future revenue. Consider all variables and always start with forecasting your expenses. You don’t want to end up securing a high loan amount only to learn later on that even your lowest forecast revenue is not enough to cover your payments. There will come a time when you will need to secure additional capital for your business. Be careful when raising money, whether you plan to pay for your dues or grow your business. Don’t make these common funding mistakes, and you can avoid ruining the financial future of your thriving business.
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