Business Loans: 5 Mistakes Business Owners Make When Applying
Building a successful business enterprise is no easy job. Along with hard work and expertise, you also need to be financially able to run it.
Regardless of your business size and reach, you are required to arrange for capital at every step of your business to ensure its uninterrupted continuity.
Making arrangements for business capital can subject you to many financial hardships, especially when your business has just started picking up or isn’t funded by any means.
The number of small businesses shutting down because of a lack of financial assistance is startling.
Based on research, approximately 29% of small businesses crash because they fall short of capital. This is where applying for a business loan can be helpful and practical.
Business loans help uplift your business with additional capital to maintain the regular flow of the working money. It can also be beneficial for business expansion ventures.
However, there can be several reasons why your request for a business loan can get rejected.
There are several mistakes you might fall prey to because of not being well-informed. Below, I have enlisted five such common mistakes that you should avoid at any cost if you want to get your business loan approved:
1 – Lack of a well-formulated business plan
Many business owners face loan rejection on the grounds of not having a sound and well-planned business idea.
The business plan is subjected to thorough examination before being approved for receiving the loan.
Lenders generally check the precise amount of credit you require, utilise the monetary fund, and how fast you can repay the amount.
Banks don’t find it convincing enough to grant you a business loan without a strong business plan.
2 – Falsifying your business financial details
Securing a loan can be a daunting task, especially for small businesses.
Some lending institutions go through years of clear and precise balance sheets before approving loans. So, your business documents play an essential role in helping you get a loan granted.
Yet, many SMEs and MSMEs try to falsify their genuine financial position. Showing expenditures lesser than the actual amount or showing inflated incomes can make your business look lucrative but might make you fall into trouble.
So, your loan application might get denied. Thus, refrain from resorting to such means.
3 – Lack of collateral
Business loans can be at your disposal in both secured and unsecured forms, with the former being cheaper than the latter.
Unsecured business loans do not require collateral. However, bigger business loans would always need you to pledge your assets for security purposes.
Be well acquainted with the difference between the two before applying. Secured business loans require you to utilise various assets such as properties, automobiles, etc., for getting a loan.
Collateral helps safeguard the loan provided to you by the lender and provides them assurance of repayment. It’s hard for small businesses to avail loans because of the lack of collateral.
4 – Applying for multiple loans
Multiple loan applications create obstacles in helping you avail of a business loan. Lenders get an impression that the recipient is in desperate need and whether they will repay the amount.
Lenders do not want to run the risk of failure of the applicant to return the amount lent.
5 – Irresponsibility in reading the loan agreement documents
Usually, the loan agreements are lengthy and intimidating and require the applicants to agree to the terms and conditions with their signatures.
But you should invest an adequate amount of time and understand every component of the desired loan agreement.
You don’t want to miss any hidden charges while accepting the agreement. Many recipients sign the documents in haste and face the repercussions of it during repayment.
Over to you
Trying to apply for business loans can be an overwhelming journey and might cause us to commit mistakes that can be detrimental later.
So, do your research, watch out for these mistakes, be adequately equipped with assets and documents, and help yourselves secure the most feasible loan.