Whether you’re applying for a business loan or a personal loan, there are common mistakes that can hinder the loan processing
Here are 10 of the most common mistakes made when applying for a business loan.
- Not knowing your credit rating. Before you apply for a business loan, you need to know where you stand. Get copies of your credit scores from the credit bureaus so you will know if you are likely to get the loan approved.
- Not reading the terms carefully before signing. In your haste to get a business loan, you may commit the common mistake of jumping the gun and signing without reading the details and terms of the loan. Not only should you take the time to read everything very carefully, but you should also ask questions about anything you do not fully understand.
- Not locking in a rate. Interest rates change. If you think you have found a good rate, lock it in before it goes up. Too often, people make the mistake of getting greedy and waiting for interest rates to drop farther.
- Not explaining what the loan is for. During the loan processing, you need to indicate how the money will be used. Lenders want to see that you know exactly what your needs are and how this loan will meet those needs.
- Making major changes. Just as you do not want to open and close various credit cards before applying for a personal loan, you do not want to make significant personnel or other changes to your ongoing business structure before applying for a business loan. Lenders want to be able to see stability in how you do business and with whom.
- Applying only to the most convenient lender. Although there are various lenders available, many people still head to their familiar bank first without shopping around. Credit cooperatives and other sources are worth investigating. For example, if you are a small business owner, you should consider how the different Government-backed loan programs can benefit your business.
All Government programmes for small business loans require a good business plan (showing good cash flow) and good credit history. Government programmes may provide assistance when a borrower’s collateral may not meet conventional lending standards and may helps overcome some financing challenges, but not bad credit.
The Government may guarantee a portion of the loan which include funds for the purchase of existing land and buildings (owner-occupied), expand or modernise facilities, purchase machinery, equipment, leasehold improvements or inventory, and finance increased receivables and augment working capital.
- Not having your finances up-to-date. Whether you are seeking a personal or business loan, you should not get into the loan processing without having the proper financial documentation. This is an area where many people put the cart before the horse, and try to get a loan without making sure their financials are up-to-date.
- Failing to have some equity in the project. Not unlike a down payment when buying a home, having some equity in a business project significantly enhances your chances of securing a business loan. If you are not invested in the project, or in the business itself, the lender will be less enthusiastic about taking on such a risk.
- Having no collateral. You need to provide some collateral, should there be a default in payment.
- Not having a business plan. 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.
There are numerous loans programs to assist entrepreneurs with starting, managing and growing their businesses. Thousands of businessmen are turning to such resources because financing remains a formidable challenge.
Many small business owners use loans to help rapidly growing businesses or to help fund change in ownerships for businesses. The benefits include of taking loans when your business is successful includes increased cash flow, and flexible repayment options (such as monthly installments of principal and interest and no balloon payments.)
If you are thinking that a business loan may be right for you, it’s best to work with an experienced loan specialist who understands the ins and outs of the agency and small business financing. Loan specialists know how loan processing works and are able to not only pre-qualify you with multiple lenders and compare rates and terms, they are also able to get you the best personal loans which has costs and payments that fit into your budget.
To lower the cost of borrowing, try to convince your lender to give you a better rate. You should negotiate with your lender and they may be willing to cut the interest rate to secure your business, and so the loan will cost you less. If you are uncomfortable about negotiating, you should engage the services of a loan specialist.
Loan specialists will not only be able to negotiate a better rate for you, they will also be able to help you compare the best personal loan offers from among the different ones given by the many banks. It also makes sense to engage loan specialists because their services are usually free.