There are many financing mistakes which small business owners should consider seriously before applying for financing. These mistakes can slower your business growth, hurt your brand identity, or can be a source of your business failure.

The lending marketplace is constantly changing and has also become less consistent since the credit crisis in 2008. As a business owner, you should get yourself prepared for the factors that can be provoking, even if you’re working with a financial expert.

The upshot is if you have a clear understanding of your financing options, you can create practical opportunities. And if you are unable to understand the key borrowing factors, then you’re halfway there. There are 5 biggest financing mistakes a small business owner shouldn’t make when applying for borrowing:

  1. Using Personal Credit Cards for Business

According to the Meredith Whitney Advisory Group (a financial services advisory firm), 82% of small businesses use personal credit cards as a strategy source for obtaining funds. Using credit cards is not the problem – it’s the usage in the wrong way. The use of personal credit cards actually shows on your personal credit report. It not only hurts the FICO scores, but also hurt your credit file and pass-over the opportunity to separate personal and business credit.

Many small businesses that required extra working capital for business growth are unable to get it for that one reason: “use of personal credit cards in the wrong way for business”.

  1. Wrongful Use of Funding

After you get approved and received the funds, now is the time to make certain you properly use them. Getting funding in the current economic condition is tough, so make sure you use the funds according to a plan.

As a smart business owner, ensure the cash is used to generate added revenue for business growth. A blend of short-term strategy (marketing or ad campaign), and long-term strategy (brand building, or credit building) can help your small business grow quickly and generate more revenues. And with that you can boost your FICO scores to obtain additional business funding in future as well.

  1. Extra Collateral Pledging

Most small businesses believe pledging an extra amount of collateral can get them funding quickly. Unless you’re working with an experienced business lender, don’t pledge extra collateral. You should also make sure the lender doesn’t take benefit of extra collateral pledging, else you will have to face the problem in getting the next funding when that transformative contract comes your way. 

  1. Trying To Figure It Your Own Way

As the lending marketplace is constantly changing, it’s difficult to figure out on your way the ever-changing financial market conditions. You will find thousands of online lending websites offering business loans but the truth is you have no idea about the hidden charges, and the “bait and switch” strategies lender used, and neither had you any training on credit. After all such complications, you’re smart enough to make the right decisions without any expert help. For some it’s easy to do the math and for most it’s problematic.

Most lenders only approved 10% of the loan applications and few among those get as much as they need. They might also have to provide extra collateral to get the needed funding. Will you be among those few who provide excessive collateral to get funding? Do you really know where to turn to when a bank says no? Even with the help of a good financial advisor, getting fast business financing is a challenge.

  1. Taking Your Personal Credit Not as your Asset

The personal credit rating is major part of the loan underwriting criteria. The personal credit can be asset or a liability. Being it an asset, you must preserve it and utilize the same in a proper way. As a liability, you need to think and do something. The best way is to search for a credit expert to help you out. Under the guidance of a professional you can turn that liability into your asset.

These are common financing mistakes which small businesses usually make. We all learn by mistakes and these will surely help smart business owners like you to make less bad decision and go for the right one. Take the right direction and start growing your business today.