Mistakes Entrepreneurs Make When Seeking Startup Loans

David NayorSmall Business

With the increase in men and women wanting to start their own business, there is also a greater need for the money to fuel those entrepreneurs. Unfortunately, the chances of a small business surviving its first few years are slim. Statics show that less than 20% of new small businesses survive their first 5 years. With this scenario, it shouldn’t be surprising that many lenders are hesitant to provide startup business loans.

Many prospective new business owners rush into financing without realizing that they are making mistakes right away and blocking themselves from some sources of funding. If you are an entrepreneur and hope to start up your own small business, there are some mistakes that you should beware of making.

1. The first mistake that entrepreneurs make is hoping to obtain startup financing without any risk to themselves. These business hopefuls want the lender to carry all of the risk. Instead, expect to carry some of that risk yourself. Try to approach lenders with 30% to 50% of the total capital already in place. This personal commitment of your own money will impress lenders that you are willing to work hard and make sacrifices for the success of the new business. Also be prepared to offer a personal guarantee for your first loan.

2. Another common mistake made by those who hope to obtain startup business loans is bringing a poorly written business plan to the table. Too often, prospective business owners fill in the blanks without actually investing thought into the plan. See what your business plan and financial model should include, here!

3. A similar mistake is made regarding the marketing plan. The costs of advertising can add up very quickly and will rapidly eat through your cash flow. A carefully thought out and realistic marketing plan is a good way to bring exposure to your business and a necessary part of obtaining startup business loans.

4. Forgetting to calculate the necessary cash flow needed to operate for a few months until the business begins to pay for itself.

5.  Heading into a meeting with the lender without providing rationale for key assumptions. Prepare clear information about how each assumption was made and the facts that support the assumptions. Include a reason for your selection of information and why you feel those numbers have relevance to your situation.

6. Neglecting to establish proof of expertise and adequate support for the business. Instead completely document your areas of expertise, including letters of reference, contact information for verbal references, and examples of work you’ve done in the past. Also bring information about those people or resources providing support in those areas where you don’t have expertise.

Finally, make sure that you can deliver your presentation with confidence in a professional manner. By avoiding these common mistakes, you will have a better chance of getting that new business capital that you need.