Startups are vastly different from established businesses and mid- to large-size companies. The biggest asset for new entrepreneurs is learning from others in the industry, and one of the biggest mistakes you can make is not doing your research when it comes to startup financing. Avoid these four common startup finance traps that could cost you your new business.

1. UNDER OR OVERESTIMATING THE AMOUNT OF CASH NEEDED TO RUN THE BUSINESS.

Writing a solid business plan can help you create a viable financial plan for your startup. Where most people go wrong is overestimating or underestimating the amount of cash actually needed to keep their business going.
Overestimating the amount of cash you need to get started can turn off potential investors and lenders. Whereas, underestimating the amount of cash needed to support your startup can lead to imminent doom. If you are unsure of how to create a business or financial plan, free business mentors can help you get started.

2. RUSHING INTO SEED ROUND INVESTMENTS.

Having potential investors interested in investing in your startup can be exciting, but look before you leap. Be sure to properly vet all potential investors before you take their money. What are they getting in exchange for their investment? How much equity are you giving up? It’s a wise move to stick with investors who are experienced and willing to help you with future rounds of investing, as well.

3. FAILING TO DO YOUR RESEARCH

When it’s time to seek out traditional financing (if ever), you still have your work cut out for you. Many financial providers act more like salespeople than consultants. They mainly want to sell their loans to you and offer you more financial accounts and services. The vast majority of them are not trained to care about your situation or provide genuine advice.

Checking the Better Business Bureau or Yelp reviews is a good start for researching potential finance partners, but it isn’t foolproof, since businesses can shut down and re-open under new names. A better choice for consumers is to educate themselves on what makes a finance partner good or bad, spot the warning signs, and if there are any doubts at all – simply move on to another provider. Learn about the different types of funding available to startup companies and entrepreneurs. Then, learn more about the bank or lender that you are interested in doing business with.

4. NOT MANAGING YOUR RESOURCES PROPERLY

All professionals should try to work smarter and not harder. In some cases, there's no need to borrow more money to make money. If you are running short of cash, manage the existing resources you have now. Make a list of the company's monthly expenses and decide which areas can be cut, without impacting the business. In the process, it may be necessary to lay off a few employees or create a new business plan.

At the end of the day, it’s always a good rule of thumb to avoid taking out additional loans, or bringing in new investors unless you absolutely have to. It is not enough to have good credit and solid references. You must have the business know-how to protect and grow your assets when you open a new business. Be cautious about the types of loans and lenders you work with, and evaluate all of your finance options before you jump into something