eSellers who find themselves held back from growing their business due to seasonal cash crunches may choose to take on a small business loan to help them out. This is not an unusual option to consider. After all, having funds available to keep you on track with your goals is a good thing, right? It could be. But before you take on additional debt, consider the following 5 mistakes that small business owners make when they move forward.
1. Not realizing that business loans are specifically tailored
Simply put, you cannot walk into a bank and say you need a loan for this and that. You have to be specific about what you will be using the funds for and you then need to find the matching loan type. For example, a working capital loan cannot be used to buy equipment and an equipment loan cannot be used to pay wages. So if you are thinking that you need funds to get you through a slow period, take advantage of a peak period, and expand your business at a desirable rate, there may not be a small business loan for you. If you choose loan that seems right for your needs but is not, you may find yourself in a difficult financial situation regardless of your funding.
2. Not considering other financing options
How long you have been in business, what you do, your revenues, and your goals, all inform your choice of financing options. For instance, banks generally prefer to fund established businesses with a solid revenue stream and a good credit rating. As an eSeller, you may not be there yet. Alternatives to traditional small business loans are available. Especially if you look at online options. But, while some of these options may be easier, quicker and shorter in term, they could come with a higher price tag. If you don’t do your research, the funding option you choose may not be right for your budget.
3. Not a good long-term solution
You cannot even out seasonal cash flow with a short-term loan. Once the money is gone, you will be back where you started the next time around. It may be better for you to choose a solution that gives you the ability to access money when needed, based on good financial planning. A business line of credit is a potential option. However, it can also come with risks.
4. Not reading the fine print
Loan agreements come with a lot of fine print. It’s tempting to let the lender explain the gist of each section of the document before signing rather than read the document through yourself. This could cost you, as loans often come with many fees and sometimes variable interest rates. It may be time consuming and possibly expensive, but you should review the agreement carefully with your lawyer to help you understand the legal jargon and renegotiate the terms, if necessary.
5. Not well-prepared to pay it back
Getting funds to support your business plans can be pretty exciting. So exciting that a pay-back plan could end up on the back burner. If you cannot present a traditional lending institution with plan for making consistent payments, you may not be approved. If you are able to obtain funds through an easier clearinghouse, you may find yourself worse off if you fall behind on your payments.
The Best Financing Option
By optimizing their cash flow, eSellers can avoid cash crunches without taking on the burden or risk associated with a business line of credit. To learn why a working capital solution is the best business financing option for eSellers, check out Payoneer Capital Advance.
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