As a leader in equipment financing consultation with Dynamic Funding, Inc., I have listened to hundreds of small and start-up business owners who are seeking capital and operating leases, and it seems like they have all made the same key mistakes. As a trusted partner to small businesses and start-up entrepreneurs, I would like to share the insights I have gained to help you successfully attain funding. While identifying the right financing provider and their terms will be the first thing, there are 5 things you should always avoid.
Not having your business plan finalized
Every funding source has a set of criteria for a venture they are looking to lease or lend to. You can’t imagine the number of small business owners who try to start the funding process, but don’t get anywhere because they aren’t ready to share their business plan. Even though you have likely had extensive conversations about your business’s financing needs, business plan is the best way to communicate them.
When you show up to your first meeting, your business plan should be completed, and include any sales projections, profit margin models, and a full summary. A financing deal will likely have several different people looking over it before being approved, so it is always better to share a polished business plan that covers anything that could possibly be needed. This not only speeds-up the process, but makes both you and your business look more professional, increasing your chances of success.
Not having enough market research
Whether or not a financing company decides to fund a loan ultimately rests on how viable the business seems. They are taking on risk in order to help you secure funding, and have to be sure that you will be able to pay them for the assets/loans you acquire. Having an ample amount of market research is one of the best ways to alleviate their concerns, and demonstrate you have a solid grasp on your market sector.
A basic business plan should cover competitors in your specific industry, but the business owners that I speak to who get their leases approved also bring insights about their sales area, demographics of their customer base, potential competitors outside of the industry, trends going in consumer behavior, and any projections for where the industry will go. Business owners who are able to communicate how their business is different/better than their competitor also seem to secure funding more often.
Not planning to share personal financials
Since leasing and financing deals depend on the viability of a business, credit history and company financial information is a paramount piece of the decision. But for small businesses or start-ups, there may not be enough of a financial history or credit profile established to glean information from. In this case, many financing companies will want to look at the business owner’s personal financial information to establish a basis.
These companies are mainly looking for red-flags in credit history, bankruptcies or liens, but having more personal financial information readily available can convey an eagerness and dedication to having the business succeed (and having the lease repaid). You should also share any assets you may have, or stakes in other ventures you are invested in.
Anticipating a low lease rate
For small businesses and start-ups that lack long-established credit and financial histories, the rates for financing agreements are often higher because of the amount of risk the financing company is carrying. I speak to a lot of business owners who are surprised that lease rates are in the mid-teens, since they see far lower advertised aimed at medium-to-large business structures or small business that are well-established.
You should definitely get rates from several sources, but I would not recommend expecting anything lower than 12%. One thing worth mentioning is that your personal financial history and credit profile could help lower this rate slightly.
Expecting a large amount of funding
Since every capital decision rests heavily on credit and financial histories, it should also be noted that small businesses and start-ups are typical only approved for a small amount of funding. This is usually under $25,000, but can go up to around $75,000. In a similar sense, many financing companies will fund a portion of the requested amount if it exceeds their comfort threshold.
I always recommend that people do research and gather as much information about a financing company to gauge their comfort level for risk and new businesses. Never be afraid to ask as many questions as possible up-front, since it can only help you decide whether this company is a good fit for your needs.
If you would ever like to discuss the financing options available to your business, or gain insight into the financing approval process, reach out to me, Alex Gish, Director of Business Development for Dynamic Funding, Inc., here.