Applying for a business loan is a critical step in procuring funding for your business. Overall, the process is straightforward. You’ll need to submit documentation of your identity along with other critical factors such as your financial standing. After they receive your application, a lender will then assess your ability to meet the eligibility criteria before making a decision. While the application process is simple enough, you’ll want to avoid these common mistakes that can hinder your ability to fund your new business.
Providing a Weak Business Plan
Lenders prefer to see that the funds they provide a business will lead to growth that makes it possible for the owner to avoid going into default. Presenting a weak business plan not only fails to generate a sense of confidence in the lender, but it can also cause them to think you have sloppy business practices. Taking the time to create a strong business plan that demonstrates how your company will turn a profit pays off when you are able to get that needed loan approval.
Failing to Submit All of the Required Documentation
Similar to applying for a home loan, you’re going to need to submit a long list of documents that lenders use to verify your eligibility and credit worthiness. In addition to the business plan, you’ll likely need to provide income tax returns, business and personal banking account statements along with legal documents such as your business license. Making a checklist is one way to make sure that you don’t leave anything out that could delay the decision.
Ignoring Your Credit History
Your personal finances will likely come under scrutiny when you are applying for a loan. Many prospective entrepreneurs find that their dreams get squashed by having issues such as a high debt-to-income ratio. Although it might mean temporarily waiting to apply for a loan, getting your credit score up can help you to get approved and score a better interest rate than if you enter the process looking like a bigger risk.
Rushing Forward With Multiple Applications
If you’ve heard that you should shop around before committing to a business loan, then this is a good advice. However, there is a right and wrong way to do so. You absolutely need to spend some time researching the various business loan options and lenders that are available. But, you’ll want to avoid casting too wide of a net. Multiple applications can impact your credit history and makes lenders think you are desperate. Instead, take your time researching which lenders are the best fit for your company and file an application with the one that makes the most sense.
Skipping Over the Terms Before Signing
The excitement of getting a loan approval could cause you to rush to sign the papers before the lender changes their mind. This mistake could cost you valuable money in the form of fees and other unexpected charges. For instance, you’ll want to check for prepayment penalties and other potentially hidden costs that could be negotiated on before you sign the dotted line.
One of the biggest mistakes new entrepreneurs make is not starting the process early. Cultivating a solid credit history and creating a strong business plan takes time. Working with a consultant as soon as your idea for a business begins to take form helps you to get everything you need in place to be a strong candidate for a business loan.