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Damaging Mistakes That Small Business Owners Make When Financing Their Businesses

Updated: May 25, 2022

Business owners tend to rely on borrowing money to grow their businesses. However, it is not without pain that many small business owners and entrepreneurs experience when borrowing money. In this article, we explore a bunch of damaging outcomes that occur when small business owners borrow money for their businesses. By sharing what we see every day from small business owners we hope to share some foresight for small business owners who wish to access financing for their businesses.

By Thomas Tramaglini, Managing Director at BRP Onesta About Thomas Tramaglini

Small Businesses Need Financing

The typical small business regularly seeks and utilizes working capital of some type to address various needs including growth. A recent dataset from Anna Serio suggested that in 2021, 57% of small businesses sought financing in amounts less than $100,000. In another recent article published by Fundera, nearly 3 in 10 small businesses fail because they do not have access the capital they need.

So, small businesses need working capital to fulfil their short and long term needs and they seek funds in all sorts of avenues, from SBA loans to Merchant Cash Advances. In 2021, we surveyed over 1,000 small business owners about their experiences with seeking funds for their small businesses.

Our data showed several commonalities which were interesting:

  • 68.8% of small business owners said that they sought working capital without restrictions

  • 43.1% of the small business owners said that speed in receiving funds mattered over most other factors, including rate

  • 92.5% of small business owners we surveyed said they wanted an SBA loan but only 1.3% said they had received an SBA loan.

  • The most popular loan product sought in 2021 was a Line of Credit

What are the unintended consequences of borrowing money to finance your small business?

Clearly, small business owners look for financing for their small businesses. The data supports our work with small business owners as they seek financing that is fast and easy. However, many times small business owners face the unintended consequences of borrowing money. From our data and experiences, we have put together a list of some different consequences that we see small business owners encounter when borrowing money.

Using Personal Credit to Finance a Business