Applying for a Business Loan? Here are Some Mistakes to Avoid
When you’re running your own business, you may sometimes run out of cash.
18:42 14 February 2021
Cash flow is crucial to any business whether to power daily operations, carry out a new project, or acquire new customers. This is the reason many businesses turn to loans to secure a temporary cash flow. However, many business owners make critical mistakes that can result in putting their businesses at high risk or subjecting them to subsequent unnecessary costs. Here are some tips on how to avoid making mistakes when applying for your business loan.
Not Exploring All Options
One of the most common mistakes business owners make when applying for a loan is not checking out all loan options available to them. Instead, they settle for the limited selection of loans that are presented to them at their local bank. When applying for a loan, potential borrowers should look into credit unions and solutions in the alternative lending marketplace. Every type of business loan serves a different purpose, so borrowers should make sure they apply for the right kind for them. This will give them the highest chance of their application being accepted.
Poorly Updated Financial Records
Another mistake that is widespread when applying for a business loan is not keeping financial records up to date. All businesses should take the time and effort to work on their financials before sending in their loan applications. All lending institutions need this information to be able to determine whether to hand out a loan or to refrain from doing so. Any financial information you present to your lender should be clear and honest. Business owners should avoid lying about financial information on their loan applications, as the data can’t be verified or can show discrepancies which will result in their loans being denied.
Only Looking at Loans with Collateral
Only looking at loans that depend on collateral is an additional error made by businesses when applying for cash advances. If your business doesn’t have enough collateral, you can always apply for unsecured loans such as working capital loans and business lines of credit. Financial Experts at Nav say that going for this type of unsecured loan can make it possible for businesses to get loans even when they don't have assets as collateral. These loans rather depend on a company’s financial data such as cash flow and revenue or personal guarantees. This allows more businesses, ones that don’t have assets at hand, to be eligible for loans.
Not Considering How Much Money Is Needed
Before you apply for a business cash advance, you should decide how much money you really need for your business. You should then stick to this amount like it’s the holy grail. This is because many unethical lenders may try to convince you that you need more money than you actually do, just because they are looking to maximize their profits. Be very careful to only borrow the amount you need as borrowing more money that you can’t pay back on time can result in future debts that you are unable to fulfill.
A good business loan can grant you the capital you need to keep your business running until you have enough revenue to sustain your operations. Unfortunately, many small businesses get disqualified when applying for loans or put themselves in situations where they bite on more than they can chew, which can result in bankruptcy. These unfortunate situations can be avoided if business owners follow the best practices when applying for credit such as exploring all options at hand, applying for an unsecured loan if they don't have sufficient collateral, or considering exactly how much money they need. These techniques can help them apply for the right type of loan for their business and have their applications accepted.