The Entrepreneur’s Guide to Avoiding Small Business Loan Crashes
Starting a small business can be a daunting, but equally rewarding endeavor. Ditching the typical nine to five can allow you to pursue your passions, tailor your job to your skills, take full creative control, be your own boss, and make a profit.
If you think you are ready to take the next step and turn your business idea into reality, there are a few steps you can take to get started. Start by clarifying your reasoning for starting a business and developing a business plan. This way, you can ensure that your business proposition is built on a solid foundation from the start. Next, assess what your financing options are. You can find capital for your business through various avenues, most often business loans. However, business grants, crowdfunding, and investors are also viable options. Finally, you will need to decide how to legally structure your business, which can dramatically affect taxes and liability. Before you are ready and ready to maximize your profits, you will need to register with both the IRS and the government for a business license.
Unfortunately, there are a few common pitfalls that many small business owners fall victim to when they first take their first steps. Many entrepreneurs view the small business loan application process as a maze of twists and turns that ultimately lead to the downfall of a business if not done properly. Complications with financing, poorly designed business plans, and mismanagement can all put you in hot water. Fortunately, you can minimize your risk of business failure and mishaps by carefully navigating the small business loan application process and avoiding the following mistakes.
Jump the cannon and choose a notary at random
Choosing the right notary can make or break your experience with a small business loan application process, so choose carefully. Check their credentials and professional affiliations, as many professional associations maintain their membership to a higher standard by requiring continuing education and a specified number of hours of work.
Some notaries may be specially trained or have extensive experience in a particular field. Having said that, you will need to find a notary near you which specializes in small business and loans. Note that all aspiring entrepreneurs must have a notarized power of attorney form for a lender in order to fund your small business loan. Fortunately, the right notary should be able to guide you through the process and remove any obstacles blocking your path.
Borrow more than you need
As with most loans, borrow only what is needed. Before you begin the small business loan process, determine exactly how much financing you will need to be successful. This way, you can avoid getting trapped into thinking that you should borrow more for additional financial cushion. Unbeknownst to most people, borrowing more than you need will result in higher interest payments, which can make it much harder to pay off the loan in the first place.
Using your loan for the wrong things
A small business loan is a powerful tool that you can and should use to move your business forward. Apply for a loan only when there issome kind of financial emergency is, without a doubt, stunting the potential growth of your business. Using your loan to pay for marketing, materials, personnel, and more can help your business reach new heights and peak productivity. With this reality in mind, you will need to develop a plan for how you plan to use the loan and how it will benefit your business.
Have a badly designed business plan
A business plan that lacks attention to detail can lead to all kinds of problems including, but not limited to, the rejection of a business loan application. Lenders want to know that you have thought about the needs of your business be successful and that there are contingency plans in place for when things go wrong. A well-designed business plan shows that you feel ready for every curve ball thrown in your path. Likewise, a detailed plan involves knowing how to move your business forward and meet a sales cap.
Starting a business before aligning your financial woes is a recipe for disaster. That said, take a proactive approach and cover all your bases before you embark on your small business journey.