6 Typical Mistakes to Avoid When Applying For a Business Loan
The dynamics surrounding lending and borrowing differ from one bank to another, and one business borrower to another. Notwithstanding, there are some common blunders which when committed can lead a lender turning down your loan or delay disbursement.These are the avoidable, yet common mistakes loan applicants do:
1. Providing Vague Information on Loan Utilization
When applying for a loan, you must indicate clearly how you will use it. Lenders want to know what your business needs are, and how the investment will help you satisfy those needs for you to generate profit and pay the loan.
Sadly, many small business owners do not have a clearly described idea on how they will utilize the funds. This ignorance leads to loan rejections by most lenders since they can’t evaluate whether the money borrowed will be used to meet a borrower’s business needs.
Also, provide sufficient information about your business plan. A caution with this: don’t furnish the bank with extra information. As a guide, your business plan should be between 30-50 pages.
2. Submitting Illegible, Outdated Documents
Don’t apply for a loan if you do not have the proper financial records. If your financials aren’t up to date, you increase your chances of being denied credit. Also, numeroussmall business owners do not take their time to work on their financials. Banks rely on this information to establish how stable your business is before lending money.
3. Ignoring Credit Score
Some institutions give loans to individuals with bad credit, but you are advised to check your credit score first. Your credit can profoundly impact on your loan application. At best, influence your chances of getting a low finance rate, and at worst, it could lead to your loan being rejected upfront.
4. Renovating Your Business Pending Loan Approval
Do not make any changes to your ongoing business structure before obtaining a loan. Lenders want to see how stable your company is, and with whom you run the business.
5. Missing Deadlines
Noteworthy, most small business owners tend to wait until it’s late to submit their business loan application. This makes them take any offer—some options have high-interest rates while others come with unfavorable terms. To avoid last-minute frustration, take your time and look around for the most affordable offer.
Review the accuracy of your credit history and rectify any errors. And fill the loan documents correctly. If your report has a mistake, chances are, it’s going to affect your score, which can hurt your chances of getting a loan. Moreover, a simple typing error, for example, providing the incorrect EIN or the wrong code for the industry can also contribute to loan rejection.
To round it up, avoid providing wrong information at all costs—don’t lie about your financial details; whether intentionally or through ignorance. If you are unsure about how you should fill your application, talk to your lawyer, or a qualified person you can trust.