1. Check Hidden Fees
Hidden fees can be a pain for business startups as budgeting is planned down to the very last penny. If costs are higher than they should be, last minute adjustments have to be made and this can be a contributing factor to low profits, especially in newly set up organizations.
Your real APR can be destroyed when you are charged $30 on a $1000 loan. Yes, it is only 3% but it is BIG money in the long run. So watch out for hidden fees which can include:
● Application fees
● Contract fees
● Administrative fees etc.
The fine print in documents often masks these costs so you need to keep an eye out.
2. What Are the “Real” Interest Rates?
Let say you were loaned $1000 and over a course of three months, you pay back $1,100 in weekly installments. If you do the math, the interest rate should be 10%. This is not true; the interest rate is actually closer to a staggering 80%.
This only happens because the calculation method used is incorrect. All businesses calculate APR as the total fees divided by the amount received as a loan, but this is not how you will do it. Instead, calculate the interest based on the amount that is outstanding at random time intervals, rather than doing all your calculations in the beginning. This might not matter much to big multinationals, but for small scale ventures, this is a hefty sum.
3. Lack of a Business Plan
Your business plan is the heart of your entire operation. It governs how well you run the business, the avenues you will use for money-making and a clear line of action to make your next move.
It contains everything from the small term, long term, temporary and permanent goals/objectives you have laid out to detailed information on your products and services.
This kind of knowledge and insight is a must-have even before starting your business because without a business plan, your lender will not provide you with sufficient funding on account of your business plan being vague or unsuitable It will also doom for your organization in the future.
If you’re starting a business, you need to demonstrate how the business will operate and make money. A business plan is essential for a lender to see your goals and specifically, how you intend to reach them. You must include all applicable supporting data, including financials.
4. Missing Payments
When you miss any kind of payments, even by a day, you are reversing almost all credibility that you built, especially when it comes to business loan companies.
Failing to clear your payments means your credit score sinks monumentally. If approach loan companies with a poor credit score, even though your loan might get approved, you’ll get a jacked up interest rate, since to them, you’re a “bad bet”.,
5. Impulse Spending
In the initial days of your organization, the excitement and availability of ready funds can get you a little carried away as you start making often unnecessary spendings. Buying a custom-built desk for your office, expensive coffee machines and company cars can cause you to eat right through your profit margin and put your entire venture in jeopardy.
Be careful on how and where you spend your capital, especially when you’re just starting out. .