This article is provided by the Business Development Bank of Canada (BDC) , which offers loans, consulting services, growth and business transition capital, securitization, as well as venture capital to more than 30,000 small and medium-sized companies.
Cet article est présenté par la Banque de développement du Canada (BDC), qui offre des prêts, des services de consultation, du capital de croissance et de transfert d’entreprise, des services de titrisation ainsi que du capital de risque à plus de 30 000 petites et moyennes entreprises.
7 Mistakes to Avoid When Borrowing Money for Your Business
Getting a business loan can be the fuel your business needs to reach the next level of success. Joanne MacKean, a BDC Senior Account Manager in Winnipeg, has loaned money to hundreds of businesses for such projects as buying equipment, real estate and technology. She sees many entrepreneurs making these common mistakes.
1. Borrowing Too Late
You may be tempted to finance your expansion projects from your cash flow. But paying for investments with your own money can put undue financial pressure on your growing business.
2. Borrowing Too Little
You’re right to be careful about how much debt you take on. However, low-balling how much a project will cost you can leave your business facing a serious cash crunch when unexpected expenses crop up.
3. Focusing Too Much on the Interest Rate
The interest rate on your business loan is important, but it’s far from the whole story. What loan term is the lender willing to offer? What percentage of the cost of your asset is your lender willing to finance? What is the lender’s flexibility on repayments? What guarantees are being asked from you in the case of default?
4. Paying Your Loan Back Too Fast
Many business owners want to pay back their loans as quickly as possible. Again, it’s important to reduce debt, but doing so too quickly.
5. Failing to Keep Your Financial House in Order
Messy financial records can leave you in the dark about how your business is performing until it’s too late to take corrective action. It can also make it difficult to approach a banker for a business loan because not only do you lack documentation, but you’ve also shown a lack of managerial acumen.
6. Making a Weak Pitch to your Banker
MacKean says too many entrepreneurs are unable to clearly explain their company’s business plan, past performance, competitive advantages and proposed project. The result is a polite “no, thanks.”
7. Depending on Just One Lender
Having a relationship with just one financial institution can limit your options, especially if your business hits a bump in the road, MacKean says. “Just as you would diversify your suppliers or customer base, or your own personal investments, you want to diversify your lending relationships.”
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.