Businesses need capital in order to achieve their growth goals. Yet, many companies do not qualify for funding for very similar reasons. Are you fund ready or are you falling between the cracks with one or more of these common missteps? Here are the top five mistakes that will prevent you from getting financed.
#1 – Mixing your personal and professional accounts is like oil and water. They don’t mix.
Your revenue, profits and recurring revenue is impressive, so you are ready to meet with a loan officer to get the capital you need for the next big move. But after a review of your financials, it’s discovered that personal transactions have been mixed in with your business’. Mortgage, car and other personal payments cannot be paid from a business account. You’re not alone though. This is a common issue called commingling. Lenders won’t be able to evaluate your business performance when applying to get funding.
So what should I do?
It’s necessary to commit to changing your behavior. Next, you need to evaluate how your finances are being organized. A qualified accountant and bookkeeper will help you keep on track with separate bank accounts and credit cards for personal and business. Create policies to account for any personal withdrawals from your business accounts.
Need help with your finances? We have resources that can help.
#2 – Caught in the hamster wheel of high-interest debt.
You were approached by a company about an opportunity to apply for “capital”. It was pretty easy and the money arrived in your bank in just a few days. Sometimes, if it sounds too good to be true, it probably is. The original amount should have been paid off within the first couple months, but the high interest rate resulted in the pay-off date months in the future. Your business was in jeopardy so you found another high-interest, MCA or Merchant Cash Advance loan to pay off the original loan. Realizing that you were trapped in a vicious cycle, you approached long-term lenders. Unfortunately, carrying too much debt or “stacking” several MCA loans will disqualify you. You’re considered to have excessive high-interest debt.
So what should I do?
It’s time to make some sacrifices to get out of this hamster wheel of debt. There’s several options depending on your unique situation. Reducing your owner’s draw, delaying vacations or big purchases and/or using some personal capital to stop working to just pay interest and spin your wheels. Set up a goal to pay off your debt by a certain time.
Do you need a business advisor to help you reduce your debt and get on the path to fundability? We can help.
#3 – Don’t put all your eggs revenue in one basket.
You pride yourself on building relationships and the business you have grown reflects that with a handful of big clients. They contribute to the bulk of your businesses revenue.
It should be no problem securing capital with your success, right? Your local lender has a different story for you. Though business is good, there are no contracts to ensure that a small group of clients will stay loyal. A bank only sees risk without clearly written contracts despite how much revenue you are producing. Revenue uncertainty is a common problem.
So what should I do?
Even if you have long-standing relationships with your clients, it’s vital that you obtain signed contracts. The ability to develop real relationships with clients is a talent. Use that to simply explain that those contracts are needed to obtain capital to grow into your envisioned business.
Want to keep it simple? Use a Master Service Agreement or MSA instead of a complicated contract.
#4 – Stay in your lane with a qualified accountant.
You’re passionate about what you do. And people can tell. Your business is doing so good that you are ready to expand. Success came easy to you, so a loan should be the same, right? Unfortunately, the loan was denied. After speaking with a specialist, the problem was identified. Your books were not properly kept with balance sheets not balancing, no cost of goods tracked and expenses were not categorized correctly. Even if you have someone handle your books, you could fall in this category. You’re considered to have inaccurate financials.
So what should I do?
It’s time to evaluate how your finances are being handled and by who. There’s a major difference between bookkeepers, accountants and CPAs. And not all are created equal. Your financial statements will need to be restated. Look for someone who will help you understand how to monitor key business metrics so you can really understand your finances.
Need help finding a qualified accountant? We can help.
#5 – You’re dreaming big with expectations of becoming a unicorn.
Your business is growing quickly and you’re ready to stop bootstrapping and start acquiring outside capital. The stories of famous startups that landed big venture capital investments are inspiring, but they can lead business owners to have high expectations based on these rare incidents. The internet has an abundance of data, but Reddit and tech news will not help you in front of VCs who demand “more traction” or the sharks that want high percentages of your company for a low amount of capital.
So what do I do?
Reset your expectations. It’s extremely rare to land a big VC investment success story. This problem is common with those who have never been funded.
There are still options out there. If you have assets, you can take on personal debt. There’s also alternative financing options such as revenue based financing. Strong recurring revenue and growth will guarantee you the funds you need without taking ownership away from you. What’s better is that your payments are based on your monthly revenue, so you will never feel like payments will compromise the security of your company’s future.
Interested in alternative finance options? We can help!
These are common challenges to business owners that can slow their growth. Don’t let these obstacles stop you. Let’s solve these issues by working together to find your business the right growth capital.
