Loan Application: 5 Common Mistakes Made by Businesses
Applying for any type of loan requires you to jump through all kinds of hoops, but it can be especially difficult for a small-business owner who is just starting out (or even trying to expand an already thriving operation). Think about it this way; when you buy a home, there is instant collateral, so if you default, the bank simply takes the property to recoup their costs. But with a business, you could fail utterly, leaving the bank with little recourse to collect (especially if your business is a separate legal entity and they can’t go after your personal assets). This can make the road to a business loan pretty bumpy. So if you’re afraid you might make a few blunders along the way that you’d rather avoid, here are some common mistakes that you should know about.
1. Failure to learn (and meet) requirements. Any lender will have requirements that must be met in order for you to qualify for a business loan. They’ll have limitations for credit score, they may ask for collateral, or you might have to provide other financial information. You should call or meet with a lending agent ahead of time to determine what materials you’ll need to provide, although you may simply have to bite the bullet and go through the loan process in order to discover the requirements.
2. Failure to know your options. There are many types of financing with various levels of requirement. Unless you know what they are and how they can work for you, you can’t make an informed decision about which will best suit the needs of your business. A lending institution should be able to discuss the various types of loans they offer, but they will probably push the option that is most advantageous to them, so it behooves you to check with several lenders or possibly even talk to a legal advisor.
3. Choosing the wrong lender. This may be the most common mistake that business owners make when trying to secure financing. Most people simply go with the bank they’re familiar with (usually the one that handles their personal accounts or one that is used for other business banking). But this could be a major blunder. Other lenders may offer more choices, better terms, or a higher likelihood of approval. It really pays to look into other lending institutions and find the ones that have the best track record when it comes to business loans. This could greatly improve your odds of success.
4. Dealing with the wrong person. Once you have settled on a lender you like, you need to ascertain which lending agent is most likely to help you secure the loan you’re seeking. You’ll want to find out who has the most experience dealing with the type of loan you need as well as who has the best success rate.
5. Not reading the fine print. Once you hear the word “approved”, you might sign anything just to get your hands on the moola. But don’t be so quick to sign on the dotted line or you could end up giving away more than you intended to. Be sure to read every document, or at least have the lending agent point out the particulars (the terms that pertain to payments, interest, deadlines, and especially penalties) before you reach for the pen.