MISTAKES TO AVOID WHEN TAKING LOANS FOR BUSINESSES

Having access to business loans can make the difference for a business for either survival or expansion of business operations. So it is important for business owners or entrepreneurs make the necessary preparations and ensure that they are taking the right loan for the company.

When trying to establish and nurture a successful business, regardless of the size, there will be a point where you need some capital injection for a given period. Usually, business loans provide the right opportunities to help take your business to another level.

In some cases, businesses may want to grow their production rates to meet increasing demands. This change in operation can only be implemented with equipment with a capacity higher than the existing ones. However, business owners and the revenues generated by the business may not be enough to finance the purchase of higher capacity equipment or facilities. As a result, seeking a business loan is the only viable option.

When seeking for loans to help improve production or grow the business, numerous entrepreneurs make significant mistakes that may be detrimental to the future and continuity of such a company. Let’s take a look at some of these usual mistakes, in order to help you make necessary preparations or changes when applying for loans.

Preparing a Poor Pitch for Lenders/Investors

For you to meet the targets of your business to achieve growth, it is obvious that you will need a significant amount funding. Your chances of getting the needed funding depends a lot on the first impression you make through your pitch. Your pitch needs to give lenders a clear perspective on the type of business you want to run, your projections, current performance, and the competitive edge you will gain through acquired loans.

A great pitch needs to be detailed and Consolidated enough to convince lenders that you have a well operated business with the potential to succeed and possibly repay the loans within the agreed period.

Any pitch you will present to lenders needs to be backed with supporting documents that provide facts about your business, thereby increasing the credibility of your brand. Some of these documents should include:

• Market studies
• Financial data
• Customer reviews
• Media reports

Focusing Too Much on the Interest Rate

While the interest rates on loans offered to you have an impact on the cash flow of your business, big or small. There are many other critical factors that as well need attention. These factors include the loan repayment terms, guarantees, the loan term, and the % of the project that the lender is open to funding.

Additionally, other parameters available on the loan agreement need attention, so it is critical that you concentrate on the fine prints. Several entrepreneurs merely skim through the agreement due to the excitement of being given a loan offer, and as such, they fail to pay attention to other clauses that can potentially cause issues in the future.

There is also the notion that all lenders have similar clauses in their agreements, however, this is far from the truth. It is important not to focus so much on the interest rate and forget about the other important details that could possibly make loans unfavorable for your business’s cash flow.

Taking Loans at the Wrong Time

In order to steer clear of debt, numerous entrepreneurs prefer to source funding for their projects through their operation’s cash flow. However, projects can prove to be so expensive that your cash flow is strained. Usually, once the funds left is insufficient to finance these projects, entrepreneurs will be forced to take loans to bridge the gap.

Taking loans at this point puts your business at an advantage given your desperation to get funds quickly to sort out your business needs. This may send a bad signal of terrible planning to lenders, and may seriously limit your chances of securing a sufficient loan.

Proper planning early on is the ideal way to go about taking loans. Executing a cash flow projection at a defined interval ensures you are well updated on the health of your cash flow and its capacity to execute any upcoming projects. In a situation where it can’t, then seeking your lender for loan is then recommended.

Sticking with a Lender

Having options is the right strategy for entrepreneurs who need loans for their business. Creating a cording relationship solely with your banker will put you at a disadvantage due to a lack of options to compare for the best terms.

Similar to how it is best to diversify your investment portfolio and customer base, so is it ideal to have a series of lending options you can always reach out to.

Migo is one great lending option you need to consider, as we provide entrepreneurs like you with the best loan terms, and interest rates that ensure you can operate your business to the optimum level. With Migo, you will most likely need no other option given that we offer the best possible solution for loans compared to other lenders in the Nigerian financial market today. Look us up and you will be convinced of our services and other benefits we offer.

Borrowing Solely Because Someone Is Willing to Lend

In some cases, lenders approach entrepreneurs with loan offers, especially the ones who have an excellent credit history. These loan offers usually arrive when there is no real interest from entrepreneurs. Such lenders go the extra mile by sweetening the deal to convince entrepreneurs with the hope that you will take it. However, the availability of loan offers should not motivate you to take it, especially in cases where you have no pressing need for it.

Business loans are specifically designed to help you sort an existing need. Your cash flow will usually take a hit when you take loans simply because it is available.

Poor/Lack of In-house Financial Management

Given the numerous happenings concerning operating a business, especially a new business, you can easily overlook other vital aspects like record keeping. Others even delegate tasks concerning finances to subordinates to take care of. However, financial records form the pillars for a business, especially one with the intention to take loans.

Poor financial records management will lead entrepreneurs to have misconceptions concerning the performance of the business. Also, there will be no adequate representation of the correct financial picture to the lender. This leaves an impression that you do not exhibit the right managerial acumen.

Entrepreneurs need to be up to date on their company’s finances if they want to avoid such a situation. You can employ the services of a qualified accountant, while also keeping tabs on the company’s finances personally.

Borrowing Too Little (Or Too Much)

Though it is recommended that you should only take calculated loans, requesting less than required to finance a project will result in unnecessary struggles since the acquired funds cannot fund the project completely.

Conversely, going above and beyond the required project cost will only result in additional funds you don’t need, while paying interest. Creating an accurate cash flow forecast while make space for extra expenses helps you avoid this issue.

Final Thoughts

Other mistakes that entrepreneurs usually make when taking loans for their businesses include picking the wrong loan options, taking multiple loans at a time, poor finance representation, and so on. For entrepreneurs willing to secure loans to grow or keep their business above water, it is important to get enlightened on the mistakes that will possibly cause damage to your business’s finances and its seamless operation.

Entrepreneurs who need ideal loan options that are specifically designed to help businesses have a strong footing and good growth potential should come to Migo. At Migo, we have a series of loan products that suits different size of business and financial needs. Visit our platform to find out products we have to help your business out of the financial emergency you may have, and you will definitely be happy you did.

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