Business owners who frequently work with business lenders tend to have at least one common quality: pragmatism. They take a realistic and practical approach to their industry and financial health. As you can imagine, the opposite approach is more common in business owners who dismiss small business loans altogether, or don’t consider debt financing until it’s too late. It’s safe to say the failure rate of small businesses would likely be a lot lower if more business owners had accepted that pursuing small business loans was the right thing to do.
To be clear, being realistic or practical doesn’t just mean accepting that you’re going to need additional business funding. It means accepting several hard truths about running a small business in your industry, and understanding exactly what your business needs to survive.
1. Things Take Longer And Cost More Than Anticipated
More often than not, it doesn’t matter what you do to prepare or how accurate your projections seem to be. Virtually all business-related endeavors take longer and cost more money than you originally expected. This is a relatively universal rule. Many business owners, however, continue to underestimate its severity along with its duration. They are aware that in their first few years of business, they’ll be spending a great deal of money and earning very little. But sometimes, businesses are forced to return to this state well after their inception. Or, it might simply last significantly longer than a few years. Either way, business owners must accept that their early stages won’t be the only time when they are spending more than anticipated and earning less than anticipated.
This is another reason companies like United Capital Source constantly stress the importance of cleaning up and building credit. When you have more credit capacity at your disposal, you can use that credit to cover the extra costs. United Capital Source offers a business line of credit designed for this exact function. Instead of digging into operational funding or delaying a payment to a supplier, your business line of credit can act as a cushion for the gap in cash flow. You must have money available for the event that there isn’t sufficient revenue coming in to compensate a vital expense.
2. Being Frugal Just Doesn’t Cut It
One huge challenge of running a business is trying to be frugal and competitive at the same time. It’s hard to watch every nickel while following through on promising initiatives or investments. At least, it’s hard to do it on your own. Plenty of UCS clients contacted us because they wanted to maintain a tight budget but spend more money on marketing, inventory, or some other monthly expense. Lucky for them, we can not only supply the appropriate amount and terms but also provide crucial advice for staying on budget as the investment is carried out.
Some business owners are so terrified of investments not working out that they just concentrate on being frugal. Well, that might serve you well for the time being. But things change and you’re going to have to spend money at some point. Being frugal simply doesn’t cut it. You can easily get carried away and refrain from spending money even if it’s undeniably the right thing do. Wouldn’t you feel a lot better if you knew the money wasn’t coming from your current operational budget or personal funding? No matter how frugal you are, the need for additional business funding will eventually arise.
3. Lose Your Best Clients/Customers, Lose Your Business
Small business loans (and big investments in general) are traditionally associated with new initiatives. Examples include signing a new client, developing a new product, or targeting a new demographic. But any successful business owner knows that it makes much more sense to invest in the customers and clients you already have. Your most crucial business partners (vendors, distributors, etc) are just like you in that they need a steady stream of income in order to maintain operations. Their business revolves around their business partners paying them on time. If they cannot fund their operations, yours might be in danger as well.
This is why companies like United Capital Source tend to prioritize staying current on bills. Many UCS clients take out working capital loans, business lines of credit, or other business funding programs primarily to prevent an unforeseen event from delaying their payments. They understand that falling behind on payments could ruin business credit and jeopardize an integral business partnership. For some businesses, the loss of a single vendor or supplier could spell their demise. But with the right small business loan, these companies can pay their business partners at a consistent rate and ensure that sufficient resources are always coming in.
There’s No Excuse Anymore
Another plausible explanation for the failure rate of small businesses is that small business loans were traditionally reserved for businesses that had been open for at least a few years. Small business loans from alternative business financing companies, on the other hand, are available for businesses as young as 6 months old, even those with poor credit history. There’s no longer an excuse for a young business to pursue additional business funding when they are in a financial pinch. The earlier you establish a relationship with a business lender, the less likely you are to make the critical mistakes featured in this list.