So the time has come for your business to apply for a loan. Whether you need it for expanding existing operations, meeting short-term expenses or as a safety backup in case things go south, capital is required nonetheless. You will find literature a lot of information out there, advising you on how to apply for a small business loan, when to apply for it and what to do to ensure you get accepted for it.
Equally important though, is the advice on what not to do when applying for a small business loan. After all, knowing what mistakes to avoid is the best way to learn from other’s experiences and there are plenty of experiences to learn from. There are over 30 million small businesses in the United States alone and billions of dollars worth of loans are provided to them each year, so it is safe to say a comprehensive list of Do’s and Don’ts exists when it comes to applying for a business loan.
This article shall focus on the don’ts and allow you to better understand the nature of mistakes made most often during the loan application process.
1. Do NOT Be Ignorant of Your Business Details:
This cannot be stressed enough. As the owner, you need to know everything about your business and by everything, we mean everything. From annual revenue streams, credit scores and time spent in business to future business plans, existing debts and expected fluctuations in income, you should be the primary and most reliable source of information for the lender regarding your Usually, all the pieces of information contribute to the lender making a decision regarding your business and if you are unable to provide them with authentic real-time data, then chances are you will not get the loan. So no detail is too meager or too unimportant for you to overlook.
2. Do NOT Rely On a Single Lender:
There are generally three sources of getting a business loan in the United States. The first is the conventional bank loan provided for short (3 to 18 months) and medium (1 to 3 years) terms. The second is the Small Business Administration (SBA) loan provided by the banks backed by the SBA. The last is the alternative loan option by private lenders. Do not make the mistake of applying to only a single type of lender. Knowing all your options not only makes it easier to decide how to choose a small business loan, but it also increases the chances of getting accepted for a loan. Usually, banks have very strict requirements and so few businesses manage to acquire conventional bank loans. SBA loans are somewhat easier to acquire and alternative loans are the easiest, yet you should never apply to just one type of lender.
3. Do NOT Use Unreliable Lender:
With the advent of alternative lending, there are plenty of shady lenders trying to con businesses out of money. Do not make the mistake of falling for an unreliable lender. To avoid this, use proper means of communication like an online lending platform such as Orumfy that ensures the authenticity of lenders and borrowers and makes the loan application process easy and transparent.
4. Do NOT Overlook Loan Details:
Even though this is a given, yet most business owners tend to overlook things they did not even know were important business details. Keep an eye out for the following loan details:
- Time of repayment
- Interest rates
- Flexibility on repayments
- Guarantees asked for in case of default
5. Do NOT Ask for the Wrong Loan:
There are numerous types of loans out there, from Merchant Cash Advance (MCA), equipment financing to lines of credit and invoice financing. You need to know which type of loan suits your business needs and ask for that type of loan. Do not waste time, money and resources on researching and applying for the wrong kind of loan that does not even suit your type of industry. To avoid making this mistake, try talking to business owners in your own industry who have taken out business loans before, they may be able to advise you on which type of loan is best considering industry requirements.
6. Do NOT Ask for the Wrong Amount:
There is a common misconception that small loans are not accepted. On the contrary, lenders are happy to provide any reasonable amount of loan as long as they are assured they will be paid back with interest. Therefore, do not ask for a loan that is too big or too small for your business since it would only end up hurting finances in the long run.
These were just some of the don’ts to keep in mind while applying for a business loan. Be sure to consult experts and do your research before going to a lender to ask for a loan.