Mistakes Business Owners Make When Securing Funding

Mistakes Business Owners Make When Securing
Funding
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Mistakes #1-5 of Our Series

Dont fall victim!
As an entrepreneur, you understand that risk is a natural part of doing business. Furthermore, you know that to achieve your business goals, you sometimes have to invest money to make money. That being said, when it comes to securing financing, many business owners take more risk and spend more money than needed. They put their livelihoods on the line and, in most cases, dont even realize their financial blunders. As a result, businesses fail and personal finances suffer. Dont fall victim! To help you protect yourself and your business, here are seven critical financing mistakes business owners make and some tips for how to avoid them.
Mistake #1: Tying up your personal assets.

Its one of the most common mistakes and probably one of the
Dont tie up your personal assets!
most dangerous. When you use personal credit to finance your business, you run the risk of damaging your personal credit. Every time a bank makes an inquiry for a loan request, your score is lowered. And if you secure financing, the business debt appears on your personal credit report. This increases your debt-to-income ratio, reducing the amount of credit available for your personal use. Personal credit is also connected to your Social Security number. Any debt incurred by your company will follow you, even if you are no longer in business. Therefore, separating your business funding from your personal finances is essential. The less you tie up your personal assets in your business, the better.
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Mistakes Business Owners Make When Securing Funding

As a business owner, its important to separate personal credit from business credit, and then start building your business credit history so you can secure a loan in the future. Here are four easy ways to get started:
If youre a sole proprietor or partnership, consider incorporating

your business or forming an LLC. Since sole proprietors and partnerships are personally liable for their businesses, incorporating helps you separate personal from business. And it also helps establish business credit without a personal credit check.
Open up a business bank account under the legal name of your

business. This helps your business establish an identity. Also, set up a separate business phone line and secure any required permits and licenses. These steps give your business credibility and look good to
Call 800.267.3420 today and get your questions answered. Advice is always free!
Capstone Merchant Capital
18663 Ventura Blvd. Third Floor Tarzana, CA 91356 Phone: 800.267.3420 Fax: 800.267.2299 E-mail: info@capstonemerchantcapital.com
creditors when applying for a loan.
Get a D-U-N-S Number from D&B (www.dnb.com). Its an

essential part of establishing your business credit profile and building your credit score.
Apply for a business credit card and/or obtain credit with a

vendor that reports to the business credit agencies. This helps you place business accounts on your credit file faster and establish credit worthiness quicker. To achieve your best score, always pay your bills on time and limit spending. Keep the balance of your credit card low. Your credit score will be dinged if youre using a high percentage of available credit.
Stay informed with intelligence at your fingertips:

Simply send your email address to us at info@capstonebankcard.com And well add you to our newsletter list
Maintain established suppliers. Have them write a letter of

recommendation prior to applying for financing.
Before applying for credit, find out if the creditors review process
will impact your credit. Not all credit checks show up on your credit report. A good consultant will not conduct credit checks until the lender is interested in working with you. By applying a credit strategy to your business, youll maximize your opportunities for financing without sacrificing your credit.
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Mistake #2: Getting the wrong loan for the job.

There are many types of loans with a variety of requirements. Unless you know what they are and how they work, you cant make an informed decision about which loan best suits the needs of your business. And since the repayment of your loan can take years,
Dont get the

Wrong type of Loan!
choosing the wrong loan can be costly. For example, lets say you own a historical building that has been well maintained but is in need of a major renovation. Most business owners would go to a conventional lender and apply for a real estate loan or a line of credit. But if you have good credit and sound financials, a commercial bridge loan might be a better fit. Bridge loans can be a great way for property owners to finance renovations or new construction. A bridge loan is a short-term real
Call 800.267.3420 today and get your questions answered. Advice is always free! Capstone Merchant Capital
estate loan designed to bridge the gap between the need for immediate cash and a permanent financing solution. Bridge loans run anywhere from 90 days to three years, and are typically paid off when the owner places long-term financing on the property after the improvements are completed. Because they are short term, most bridge loans have no prepayment penalty. The payments are generally interest-only, making this an attractive, inexpensive option. Questions to answer before you look for a loan:
Do you need money for construction and start-up only or for

operating expenses too?

Do you have the capital required of traditional loan structures or

are you capital-poor at the moment?
For how long will you need financing? Is this a short-term

situation (three years or less) or a long- term funding need?
What is your FICO score? Your consultant can steer you to the
lenders with an appetite for your score, minimizing the time involved.
How do you plan to use the money? Start-up cash? Construction?

Equipment? Working capital? Down payment?
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The answers to these questions will lead you to the right loan. If you have multiple needs, a combination of capital solutions might make sense. For example, if a manufacturing company is planning a $1 million expansion, it might make sense to take a combination approach to funding that includes a bridge loan, an accounts receivable factoring program, and a line of credit. This multifaceted approaches helps business owners secure funding and manage cash flow, creating a more desirable and comprehensive solution. A financial consultant can help you identify the best options and compare the pros and cons. Even if youre capital-poor, there are many creative alternatives to financing such as purchase order financing and merchant cash advance programs. It pays to compare loan types and structures. By applying a credit strategy to your business, youll maximize your opportunities for financing without sacrificing your credit.

Mistake #3: Selecting the wrong lender

When trying to secure financing, most business owners go to the bank that handles their personal accounts or the one they use for business banking. This is a mistake. Taking the time to search for the right lender may mean the difference between business financing success and failure.
Dont select the wrong lender!
Its important to compare several lenders. Certain lenders may offer more programs, better terms, and/ or higher approval rates. Its also important to look for a financing partner who knows your industry, your business, and has local and national financing contacts, because there are lenders who may specialize in your business.
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They understand your margins, receivables, and cash flow seasonality. On a local basis, these resources are often not available. A construction company would be highly challenged to find a local company to factor accounts receivables. But, by working nationally, you can tap into a company that specializes in construction accounts receivable factoring. By working with a company that understands your business, you can find tailored solutions that meet your needs exactly.
When searching for the right financing partner, look for:
Access to a variety of products and lending options your business

may need.
Experience providing loans to businesses like yours. Involvement in government-backed programs, like the Small
Business Administration loan program. By choosing a partner who
The easiest way to avoid these seven devastating mistakes?

Personalized business financing by a Capstone consultant makes it easier than you ever thought possible. You owe it to your company to take charge and to address these costly and dangerous errors. By applying a credit strategy to your business, youll maximize your opportunities for financing without sacrificing your credit.
knows your market and has access to specialized lenders, youll greatly improve your odds of success. Youll not only enjoy the convenience of one-stop shopping, youll be able to compare product and program rates, terms and options, and more easily identify your best financing solutions.
Mistake #4: Dont borrow long term unless you have to

Do not get an asset-based loan or Line of Credit (LOC) when its not suitable for your business structure. Choose wisely! A business loan, or asset-based loan, is a good way for you to get funds if youre looking to pay the money back over a specific period of time. The interest rate is often fixed and so are the monthly payments. Property mortgages, vehicle financing, and large equipment purchases are all examples of business needs that would be best financed through a loan.
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Business owners shouldnt obtain business loans if they want more money later on. The loan amount is set, so you cant draw more money in a year or two. Also, your loan will stay on your credit report as an outstanding debt until its completely paid off. This impacts your credit score and affects your credit worthiness. If youre trying to build your credit or plan on making a large business investment in the future, confer with a small business financing consultant before you apply. Call 800.267.3420 today and get your questions answered. Advice is always free! Capstone Merchant Capital
If you need cash on a short-term basis, an unsecured business line of credit (LOC) is a good option. For example, a small construction company may need money to purchase materials for a customer job that will be completed within a months time. By utilizing a credit line instead of a loan, you only pay interest on the money as long as its outstanding. When you complete the job and receive customer payment, you can pay back the funds immediately. It doesnt make sense to take out a long-term loan that would take years to pay off. Unsecured lines of credit are also great for renovations, expansions, inventory, taxes, and working capital. Keep in mind, interest rates on an LOC are often variable and tied to the Federal Reserves prime rate. This can be a disadvantage if the prime rate goes up. Your LOC interest rate can go up, which increases your payment amount, negatively impacting your monthly cash flow. As with business loans, its smart to confer with a small business financing consultant to determine which type of loan is most suitable for your situation and business structure.

Beware of long term loans !
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Keep in mind, interest rates on an LOC are often variable and tied to the Federal Reserves prime rate. This can be a disadvantage if the prime rate goes up. Your LOC interest rate can go up, which increases your payment amount, negatively impacting your monthly cash flow. As with business loans, its smart to confer with a small business financing consultant to determine which type of loan is most suitable for your situation and business structure.
Mistake #5: Leasing equipment more advantageous

Buying equipment when leasing would be more advantageous for
Consider Leasing for Better cash Flow
cash flow. Purchasing expensive equipment can hurt your immediate cash flow. Even if you decide to buy equipment using a loan, banks often require a sizeable down payment and may limit the terms to 36 months or less. Most of these loans are floating rate loans, so the payments vary, making it difficult on your monthly budget. In addition, the payment may not be written off as a business expense. The loan is applied directly to your credit line, which impacts your liquidity. Depending on the cost and your future revenues, purchasing equipment can have a negative impact on your business for some time. By leasing, you can acquire equipment and conserve working capital, getting immediate use of the equipment with minimal upfront cost. Many leases require no money down, with payments due monthly. And some lessors even finance the soft costs associated with the equipment. Here are some more key benefits:
Interest rates are fixed, so payments remain the same for the
term of the lease.
Terms are flexible, often 60 months or longer, to help

accommodate cash flow needs.
Payments can be made with pretax dollars.
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Payments may be treated as a business expense. You expand your credit lines beyond your banks line of credit,
building more resources for your growth. Before making large equipment purchases gauge your business cash flow and review your leasing options.
The easiest way to avoid these seven devastating mistakes?

Personalized business financing by a Capstone consultant makes it easier than you ever thought possible. You owe it to your company to take charge and to address these costly and dangerous errors. By applying a credit strategy to your business, youll maximize your opportunities for financing without sacrificing your credit.

Call
800.267.3420 today and get your questions answered. Advice is always free!
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Mistakes Business Owners Make When Securing Funding - Mistakes #1-5 in Our Series of 7

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Mistakes Business Owners Make When Securing

Mistakes #1-5 of Our Series

Mistake #1: Tying up your personal assets.

Dont tie up your personal assets!

If youre a sole proprietor or partnership, consider incorporating

Open up a business bank account under the legal name of your

creditors when applying for a loan.

Get a D-U-N-S Number from D&B (www.dnb.com). Its an

Apply for a business credit card and/or obtain credit with a

Stay informed with intelligence at your fingertips:

Maintain established suppliers. Have them write a letter of

Capstonemerchantcapital.com Powered By: Capstonedata.com