While the current pandemic has affected the profitability and cash flow of many businesses, there are ways to improve the situation and bounce back. And a
business loan is one of the easiest means to do so. These days, financial institutions offer a variety of business loans (both short and long term and secured and unsecured) to help you meet emergencies, conduct daily operations smoothly, expand your venture,and even acquire a new facility. And
business loan interest rates are often attractive and the tenures are flexible. However, to make the application process smooth and get an approval quickly, avoid these 7 mistakes.
- Poor financial history or a low credit score:
Before opting for
small business financing, check your financial history carefully. If you have defaulted in the past or not paid your credit card bills on time or have pending invoices, a lender might consider you as a high-risk borrower. The same goes for a low credit score, as it shows that you are not creditworthy or cannot repay loans on time. Even if a financial institution agrees to lend you money, the interest rate will be high. So, maintain a good financial record by paying all your dues on time.
Also Read: Check Your Business Loan Eligibility - Not having a proper business plan:
One of the top
business loan tips you should follow is to have a concrete plan. That is because, any lender will ask you how much money you need, how you will use it, and how you intend to pay the loan back. So, you should be able to answer these questions properly and support it with data on operating expenses, revenues, profits and future projections. You also need to provide your balance sheet,
IT returns, profit and loss statement and cash flow statement for the lender’s easy assessment.
- Borrowing more than what you can repay :
Availing a
small business loan that is more than what you can afford is a big mistake, as a default will ruin your credit score and credibility as a borrower in the future. So, apart from assessing your financial condition, calculate the EMI by using the online calculator most lenders provide. Enter the loan amount, interest rate and tenure to get a precise estimate and then decide if you can take the loan or not. Lenders will also check your income proofs before loan sanctioning,as a part of the
business loan eligibility criteria.
Also Read: Fuel Your Business Growth with Unsecured Business Loans ear about collateral : Business loan can be either secured or unsecured, though most lenders need you to pledge collateral as it guarantees timely repayment. It can be a piece of land, house, commercial property, machinery or even inventory. Plus,
secured loans get sanctioned more easily as the lender can sell the collateral in case of default. Unsecured loans are mostly approved when your credit score is satisfactory. So, if you have an average or poor score and no collateral, the chances of loan rejection might be high.
- Not reading the fine print:
A small business loan agreement is a legally binding document that covers a lot of terms and conditions, and you need to read closely before signing the same. So, be thorough and watch out for hidden clauses or charges. Or, it can pose a problem afterwards. Ask the lender if you cannot understand technical terms etc.
- Not researching or applying for the wrong loan :
Business loans can be of different types, like bill discounting,
working capital loan, term loans, machinery loan, medical equipment loans, and so on. So, if you take a loan without researching about its features, benefits and conditions, or do not compare different lenders, you might end up choosing the wrong type. This can cost you heavily in terms of repayment or your needs might not be met or the lender might reject the application.
- Making major changes in business structure :
If you restructure your business a few days before applying for small business financing, the lender might consider your business to be unstable or might think that something is not right. And this might lead to rejection.
Also Read: Must to Know Facts to Get a Small Business Loan Besides avoiding these mistakes, make sure you provide accurate information regarding address, identity, income, contact details and business related details. If you wish to avail the
best small business loan, your application and paperwork should be in place. And take time to research and compare loans and lenders before taking a call.
