Every business, no matter the scale, runs on a strong foundation of capital. Understandably, many choose to undertake business loans. If you’re considering applying for a loan for your company, steer clear of these common mistakes.
Confusing business plan
A small business loan application can be denied if the business plan presented creates confusion or has incomplete or chaotic ideas. An ideal plan consists of well-thought action points which is fit for evaluation.
Deceptive financial figures
When asked about the financial details of your business, provide accurate information. Many borrowers readjust their figures to present a rosier picture of the business. However, it isn’t difficult for lenders to identify this due to extensive knowledge and experience in the field, leading to rejection due to dishonesty.
Bad credit score
Maintaining a good credit score before applying for a business loan is important. The range for the credit score is 300-900. A score above 700 is considered to be good according to lenders and will fulfil the eligibility requirement. If you are applying with a poor credit score, your application is likely to get rejected. Always monitor your credit score and take steps to improve it before you apply for a loan.
Loaning more than you can afford
Always check whether you will be able to afford the desired loan before applying for it. The affordability and repayment capability of the applicant are analysed with the help of the submitted financial and income proof. If it does not correspond with the standards of the financial institution, the loan will be rejected. Use a business loan EMI calculator to understand repayment capacity before you apply.
Simultaneous loan applications
Having simultaneous loan applications proves that there is a frantic need for credit and will alert the business loan lender about your repayment strategies because you will struggle to pay such an amount. To avoid the risk of dealing with inconsistent payments, and will lead to the rejection of your application.
Wrong choice of loan product
If you are a small business in need of immediate credit, avoiding certain details on business loan agreements because of the extensive documents could lead to the application of a different loan product than what was intended. If you want to change it to the desired one, you have to pay additional charges. Therefore, always read, understand, and analyse the documentation before signing the agreement.
Incomplete business information
Watch out for the details throughout the application process of your business loan to avoid inconsistencies in the information you provide. If a mismatch or incorrect information is found in the documents, the lender will doubt your authenticity and lead to rejection. Personal and business details have to be thoroughly checked before applying.
Taking a loan is an important financial decision. It may even affect the success of your business. Thus, it is prudent to be aware of the loan application procedure and common mistakes that can hamper your chances of securing funding.