Loans from commercial lenders provide an easy avenue for entrepreneurs to run their businesses. What should also be made clear is the fact that the prospects of obtaining a loan can be diminished by not paying attention to simple mistakes. Here are some common mistakes to avoid when applying for a business loan.
Not having a business plan
A business plan demonstrates that you are taking a thoughtful approach to running your business, which your banker will perceive as something that will reduce their risk. Not having a business plan with therefore reduce your chances of obtaining credit.
Having no collateral
Remember, banks don’t like risk. Collateral removes, or at least reduces, risk. Your banker will want to know that he can recoup some of the loss should you default on the loan. You will therefore do well to have some form of collateral.
Applying only to the most convenient lender
Most Main Street business owners head to the local bank first. Although there’s nothing wrong with this approach (and it’s certainly what your local bank wants you to do), you are not under obligation to do this. There are many online resources to help you find the bank, or maybe even an alternative lender, which is best suited to your situation.
Not reading the terms carefully before signing
Once you have the loan, before you sign on the dotted line, make sure you read and understand all the terms. They call it “mouse-type” in the world of business because it’s usually so small only a mouse can read it, but you need to. What’s more, reading alone isn’t enough; make sure you understand it all.
Not knowing your credit rating
Before you apply for a loan, you need to know your rating. Get copies of your credit score from major credit bureaus. Make sure you check your personal as well as your business credit rating.
Choosing the wrong lender
There are more borrowing options for small businesses than ever before, from the traditional sources such as banks and credit unions, to alternative lenders and crowdfunding websites. Don’t rush into the borrowing decision. Take the time to assess all of your options before you apply for loans. Then, if you receive loan approval from multiple lenders, carefully compare the offers to make sure you’re getting the best possible terms.
By eliminating the mistakes listed above, you will certainly increase your chances of obtaining a business loan.