It is easy to make financing mistakes when searching for a loan to help grow or operate your business. However, if you aren’t careful or fail to consider critical details that are often associated with borrowing funds, you can end up making serious financing mistakes that will haunt you for years to come.
Here are several common financing mistakes to watch for and what you can do to avoid them.
Calculate Interest Rates Correctly
According to financial experts at Entrepreneur, oftentimes the APR (Annual Percentage Rate) for loans are incorrectly calculated. For example, although many people know the APR includes the interest rate and associated costs, such as insurance, prepaid interest, and closing costs, they forget or do not know that the interest is based on the entire amortized amount, which includes the unpaid balance owed at each period in time.
Solution: Make sure to correctly calculate the APR, since this financing mistake can be costly in the long run, especially when borrowing large sums of money or borrowing for longer periods of time.
Watch for Hidden Expenses
Many individuals fail to thoroughly investigate or ask questions about all the expenses involved when establishing a loan. The charges for items such as loan origination costs and handling fees can add up and impact the bottom line of the loan.
Solution: To avoid surprises, unexpected costs and financing mistakes that you can’t afford, ask lending institutions to give you a complete list all startup expenses or ask where you can find them on the loan application or contract.
Remember to Consider Opportunity Costs
Other costly financing mistakes to steer away from include signing up with lending institutions that are known for taking long periods of time to approve or fund loans. Some lending institutions can take as long as 14 days to evaluate loan applications, and then take up to two more months to fund the loan. While you are waiting for the loan to process with slow-moving lenders, you can lose sales, operating opportunities, and your patience.
Solution: To avoid this problem, shop for online lenders or storefront lenders that move at a pace that better suits your specific needs.
If you need help determining your company’s borrowing requirements or have questions or concerns about a loan, be sure to seek the help of reputable financial specialists. Taking steps to avoid financing mistakes and looking for a loan that fits the goals of your business can save your business a great deal of unnecessary aggravation, time and money.