Oftentimes, small business owners are unable to get their business loan approved, while being clueless about the reason for the same. The fact is, they fail to pay attention to the little details that go into the decision-making process of lending. With so many business financing options at your disposal in today’s times, it is also important to note that each of them come with their own requirements and criteria for approval. The following are some of the common mistakes to avoid when applying for a business loan:
Not knowing your credit score your business credit score is one of the biggest determining factors in the initial approval stage as well as all the associated fees, rates, and repayment terms. Make sure you obtain a copy of your credit report from several credit bureaus.
Failure to explain what the loan is for- it goes without saying that not only for business loan, but for any loan for that matter, it is crucial to explain to the lender how you plan to use the money. Have a clear idea of what your needs are, how this loan with benefit you, and how this loan will meet their needs.
Making major financial changes prior to submitting your application- lenders should also be able to see that your business is stable, both in how to do business and who you do it with. Just as you do not want to open and close several credit cards prior to applying for a personal loan, likewise you avoid making significant financial changes to your ongoing business structure before applying for a business loan.
Failure to provide adequate collateral- traditionally, lenders, in an attempt to protect themselves against a default in payment, require some form of collateral to be pledged as security for the faulty payment. It is typically a requirement when obtaining a business loan. In some cases, it may be optional, but offering collateral does give a significant boost to your chances of being approved for the financing you want.
Lack of a concrete business plan-in case of a business loan, you have to demonstrate how the entire business will continue to operate and make money. You have to show your lender your goals, how you intend to reach them, supporting data, as well as past and current financials.