5 Biggest Small Business Funding Mistakes
As a small business owner, the thought of getting funding for your small business is exciting. Just thinking about all of the things you can use the funding for blows your mind, doesn’t it? The money would help so much. But this excitement is what causes some of the biggest small business funding mistakes to happen, and nobody wants a mistake to be the reason why you and your small business didn’t get funding.
In order to avoid the biggest small business funding mistakes, you must first know what they are.
The last thing you want to do is make a mistake when you’re looking for and applying for funding for your small business, especially when the funds could mean the difference between success and failure of your small business.
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While there are so many different reasons one can make a mistake when searching and applying for funding, these are the 5 of the biggest small business mistakes that entrepreneurs across Canada make.
- #1: Applying for funding too late (or too early)
- #2: Applying for funding without a business plan
- #3: Not knowing what you need (financially)
- #4: Applying for anything and everything
- #5: Applying for too much money
Applying for funding too late (or too early)
One of the biggest small business funding mistakes many business owners make is simply applying for financial help too early or too late.
A typical business owner needs to apply for funding 3 to 6 months (if not longer) prior to when they need the funds.
While certain government funding programs, bank loans, or private investors may provide funding quicker, it is always better to give yourself plenty of time to search for the funds, apply for the funding, and wait to obtain the funds.
The last thing you want is to apply too late and miss the deadline when the funds are really needed.
The same can be said for applying too early.
If your business isn’t ready yet, applying too early for funding is another small business funding mistake many people make and simply get denied.
If you don’t have a business plan, don’t have a business that’s starting or about to start, there is no need to apply just yet.
Applying for funding without a business plan
Another critical small business funding mistake is applying for funding without a proper business plan.
And no, a business plan in your head is not a business plan.
A proper business plan isn’t difficult to do, especially if you know what you want to do. You can always use a tool such as our Business Plan Builder Tool to get it done right.
The business plan, if done right, will tell the bank, investor, or government funding agency all about your business: what you want to do, how you’re doing it, how you will make money, what you need financially, and the process of it all.
Applying for funding without a business plan is a sure way to get denied.
Not knowing what you need (financially)
If you have a business plan, this is a section that should be pretty clear and obvious to you, as a proper business plan will have your funding needs outlined and broken down.
A small business funding mistake that many entrepreneurs make, even those with a business plan, is not explaining the funding needs clearly.
How can you ask for funding if you don’t know what you need funding for?
Sure, everyone can use the money, but why would anybody give you any if you don’t know how to explain yourself and what you need the funds for?
Applying for anything and everything
A serious and dangerous situation, and a critical small business funding mistake, is applying for anything and everything.
For example, the Government of Canada has hundreds of funding programs small business owners can apply for. But not all of them are right for everyone. You have to know your funding needs, meet the criteria of these programs, and apply only to those that are right for you. Otherwise, you’re wasting a lot of time.
At times when funding is needed, business owners are willing to do anything to get the money. This can mean taking on credit cards, lines of credit, high-interest private loans, government loans, private investors, or borrowing from family and friends. Eventually, this can get too much and can bankrupt you and your business pretty quickly.
To avoid this mistake, only apply to the proper funding sources and for the amount of money you need and know you can pay back.
Applying for too much money
Similar to the mistake above, many business owners apply for too much money.
While having a lot of money available in your business is great, it’s not always a good thing.
Borrowing too much, if you’re not in need of it, could put you in financial trouble. You have to pay interest on the money borrowed, and depending on where the money comes from, it could result in equity exchange, credit score issues, or inability to borrow more money down the road. It’s also easy to spend money when you have it.
A simple rule to ensure success is to apply only for the money that you need and only the money that you know you can pay back.
How to avoid these small business funding mistakes
Now that you know the mistakes small business owners make when looking for funding, avoiding them is critical.
Moving forward, be sure to complete your business plan, as this will help you understand your funding needs.
Give yourself plenty of time before you really need the funds, so apply early but not too early.
With your business plan, figure out what you need, how much and what for, and only apply to trusted sources such as government funding agencies or banks.
Finally, borrow only the funds that you need and know that you can pay back.
Avoid making the 5 biggest small business funding mistakes mentioned above, and you’ll be well prepared for your funding search.