7 Common Mistakes Most People Make When Applying to a Business Loan
Getting a business loan is a daunting task. There is no point in sugar coating it if you are willing to go through the process with a bank or a prestigious financial agency. One of the first thing that will pose a challenge is the fact that you need offer some heavy evidence to these institutions that you lead a responsible life when it comes to handling your finances and that you are able to pay back the money you are set to owe them. With that in mind, we can tell you there are other factors that affect the process of getting granted. Even if you manage to be successful with a lending agency you are still exposed to failure and you need to be prepared for it.
photo/ Gerd Altmann
Wherever you are taking a loan with a bank or with a private lender, here is a list of the most common mistakes done by entrepreneurs when they try out a business venture for the first time. Take a not and be mindful of some of them to avoid failure:
- Going Overboard with your Business Plan
The business plan is a key ingredient of your financial strategy. You won’t need it if you are asking for money to a private lender, but that doesn’t mean that you don’t have to prepare it after all this plan is the one that will bring back the profits when you set up shop. A bank will review this plan thoroughly. If you don’t keep your strategy grounded in reality, banks will say “no” to your face. If you need to make sure that your business plan is solid and sound even if you are getting granted by a lending agency take it up to a financial advisor.
- Being Unaware of your Credit Score
When you face a bank you need to show them you are a reliable administrator with your own money, the best strategy is to approach them with a copy of your credit score certified by a credit bureau. Private loan agencies rarely ask for a personal credit score, but if you are asking for sums that go over $100,000 they might require this information just for their records since they usually grant the money even if you have a bad records score.
- Mishandling Tax Forms
Certain banks and lending agencies request tax forms to grant loans. There are a lot of people out there offering custom-made software to handle taxes and most of them do it wrong. The best approach to handling taxes if you don’t know how to do it yourself is to hire an accountant to manage them manually.
- Not Setting an Interest Rate
This piece of advice works out great for both scenarios. If you are approaching a bank you probably will sit down with a business agent to close the deal regarding your loan, you need to set on paper the interest rate of this loan and how it will be charged. If you don’t dare risk an increase in rates this step is crucial and it will help you save money. Beware though it can also backfire since interest rates could drop and you’ll be facing loses in choosing to work with fixed rates. A lending agency will have you choose the rates on their website and they will stick to their word as long as you pay on time.
- Not Reading the Fine Print
In the previous recommendation, we established that having a loan deal in writing makes things easier for both parties. It establishes a contract between them and everyone is aware of the deal they are getting into. You’d be surprised how many people fall for this trap for not reading the fine print on each contract they sign-off. Loan grants need to be reviewed thoroughly, preferably by a lawyer and an accountant. Even if the grant is offered by a private lending agency, that way you can avoid any misunderstandings, hidden charges or any sort of unpleasantries.
- Dealing with a Broker instead of a Lender
If you are looking for a Loan Business grant you should avoid brokers at all costs. These people have the habit of charging unaware users that don’t have the slightest clue that in this day and age getting a loan from a private and reliable lender like Discovery Credit is easier than ever. They also do a terrible job at managing your credit score since they send out applications to a number of banks hoping one will stick and all these institutions will make inquiries about you. The backlash will be negative if you need to use the formal financial system in the future.
- Lack of a Spending Plan
If your business is already up and running and you are asking for a business loan to sort out issues regarding your day-to-day operation a bank will ask you why you need the money for. If you don’t have it in writing, you’ll receive a sound “no” for an answer before even asking for a chance to explain why. If you ask a loan agency for the money they won’t ask about such a plan, but the best you can do for your financial health is to have it ready and stick to it.
Author: Kamlesh Kumar
