The 5 Biggest Mistakes To Avoid When Getting A Business Loan

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It is human to make mistakes. You have made a few in the past, and you will probably make some more. The one place you do not want to make mistakes is when you are trying to get a business loan. If you make one of the following mistakes, you can bet that the application for the loan will be denied. You can always try again through another lender, but you will never get accepted until you fix the problem. Let’s jump right in and go over the 5 biggest mistakes you need to avoid.

1. Not Proving Your Needs

It does not matter which type of lender you plan to go through. They will want to know how much you want and why you want that specific amount. You can talk all you want, and you may even be making some good points, but the lender is all about paperwork and wants to see documents supporting what you are saying.

The mistake many people make is coming up with a good, rounded number that will cover your needs, plus a little bit extra to play with. That little bit over can be enough to get your application denied. The reason for this is simple. You can not show why you need that extra amount, and the lender is not in the business to hand over a loan because of a smile and handshake.

2. Accepting Unreasonable Repayment Terms

The lender may offer you a loan regardless of your financial status and risk number. Still, the trade-off will be high-interest rates and massive monthly payments. Do not let yourself get so excited by an offer that you forget to be realistic. A loan that is outside of your ability to pay back quickly is a loan that you should pass on.

Too many people see an offer and sign on the dotted line without reading through the contract. You may find out that the proposal was not a good one. You must remember that you are the only person responsible for paying the loan back. You are responsible for the payments and are at fault if you cannot make them. It does not matter how much the lender jacked up the terms. It boils down to the fact that you should have read through it entirely and not signed the contract if it did not benefit both of you.

3. Not Comparing Lenders

No two lenders will be the same, and no two loan offers will be duplicated. An online comparison site, such as iSelect, is crucial because they do all the hard work for you. They will take your information and run it through their online portals. From there, they will match you with some of their partners that they feel will be willing to work with you.

After that, you must sort through each offer and find the perfect one for you at a rate you can pay back without having to mortgage the house again. Read all the terms and conditions rather than judging the best to be the one with the lowest rates. Check all the aspects of the contract, along with the rates and terms they offer you.

4. Not Having The Correct Financial Information

The lender will not take your word for anything. They want documentation to prove everything you claimed on the original application. It is a common practice for people applying for a loan to fudge a little on their numbers. After all, who will ever know if you increase your profits by a few thousand and decrease your expenses by five grand or so? The easy answer is that the lender will because you will have to prove your financials to them.

Not to mention that this is very unethical. It reflects poorly on you, your business, and anyone involved in your industry. When it comes to success, your reputation is everything, and it is hard to fix once you have crossed the line. When you fill out the application and go through the lender’s interview process, always use the numbers you can see on the paper in front of you. It is safe to say that you can round up or down a little bit as long as you explain what you have done.

5. No Business Plan

Having an accurate business plan is something that you should have completed before opening your business. It should also be something that you regularly update, so it reflects accurate information. You need to realize that your business plan is not a set of guidelines you can not veer away from if it is beneficial. It is a baseline that you should follow.

It details all the information about your industry, including how your competitors rose above the others to become successful. This is research that your lender will want to know because it shows facts. Lenders are all about facts and documents, so take the time to complete a business plan that is detailed and accurate.

Final Thoughts

There are so many mistakes that you can make when filling out an application for a business loan that you would think it would be impossible to get one. That is not the case, though. If you take your time, you can get through the process without turning any of your hair grey. Read through each line of the application and answer everything accurately.

Everything that wants numbers or history will require proof, so you might as well dig up the documentation as you fill out the application. If you do not have a piece of information, figure out how to get it before finishing the process because your lender will need it.

The bottom line is that you must be accurate, honest, and ready to talk your way through the details. Do not push your way through the process, and once you get the loan, always use the money for the purpose you intended it for. After all, the main reason to get a loan is to improve your business to earn higher profits.

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