Are you planning to apply for a business loan? If so, you need to know what common mistakes can lead to your loan application being denied. In fact, over 9% of small businesses often receive no funding after applying for a loan.
This could be due to a mistake on their application or applying for the wrong type of loan. Making a mistake on your application is likely to make the process more difficult than it needs to be.
Unfortunately, many business owners still make these mistakes in their applications. Here are seven of the most common loan application mistakes to avoid:
1. Not Having a Solid Business Plan
Your business plan is a roadmap for your business. It should outline your business goals, strategies, and how you plan on achieving them. Your business plan is the first thing a lender will ask for when applying for a loan.
Without a solid business plan, it will be difficult to convince lenders that you are worth investing in. Make sure that your business plan is clear and concise before filling out your loan application.
2. Not Researching the Lender
One of the biggest mistakes people make when applying for loans is not researching the lender. If you don’t know anything about the lender, how can you be sure that they are legitimate?
There are a lot of loan sharks out there who will take advantage of people who don’t know any better. Do your homework and make sure that you are applying for a loan from a reputable source.
3. Applying for Too Much Money or Not Enough Money
If you’re not sure how much money you actually need for your project, it’s easy to make the mistake of applying for too much money. This can also happen if you’re hoping to get a lower interest rate by borrowing more than you need.
If you don’t know how much you need, it’s better to overestimate the amount and only borrow what you require. The loan application process can be long and tedious.
The last thing you want is to go through it again because you didn’t originally apply for enough money.
Additionally, if you don’t know how much you need, you may apply for the wrong loan. There are many different types of loans available, and each has its own specific purpose.
You need to make sure that you are applying for the right loan to meet your needs. Otherwise, you may end up with a loan that doesn’t do what you need it to or one that has unfavorable terms.
To understand more about different types of loans, check out Your FundingTree.
4. Applying With Bad Credit
Bad credit is an enemy of loan approvals everywhere. If you’re hoping to get approved for a loan, the first step is to ensure your credit score is as high as possible.
You can get free credit reports from each of the three major credit bureaus once per year at AnnualCreditReport.com. Check them over carefully to identify any errors that could be dragging down your score.
Additionally, ensure that you’re paying all your bills on time, including your credit card bills, loan payments, and other monthly obligations.
If you have bad credit and are still hoping to get a loan for your business, consider working with a business loan provider specializing in loans for small businesses with bad credit.
While it may be more difficult to get approved for a loan with bad credit, it’s not impossible. With a little extra effort, you can improve your chances of getting the funding you need.
5. Failing to Shop Around for the Best Lender
Many lenders are willing to work with small businesses, but not all of them will offer the same terms or rates. It’s important to compare different lenders before making a decision so that you can get the best deal possible.
If you don’t shop around, you could end up paying more in interest and fees than you need to. You might also miss out on important loan features like flexible repayment terms and low early repayment penalties.
So, take the time to compare different lenders before you decide which one is right for your business. It could save you a lot of money in the long run.
6. Not Knowing Your Interest Rates and Terms in Advance
Not knowing your interest rates and terms in advance can lead to a lot of wasted time and effort on your part and potential frustration if you’re not approved for the loan.
Before you even start filling out a loan application, make sure you understand the interest rates and loan terms and conditions that you may be offered.
You can use an online loan calculator to get a general idea of your monthly payments and then compare those figures to your budget to see if you can afford the loan.
If you’re not sure what interest rates you qualify for, talk to a loan officer at your bank or credit union, or look online for small business loan providers that can offer you pre-qualification for a loan.
Once you understand the interest rates and terms you may be offered, you can begin filling out your loan application with confidence.
7. Signing Contracts Without Reading Them
Signing a loan contract without reading it is like signing a blank check. You’re giving the lender permission to take whatever they want from you without knowing what it is in advance.
Before you sign any loan contract, read it over carefully. Remember to ask as many questions as possible if there are any terms or conditions that you don’t understand.
It’s also important to make sure that you’re comfortable with the loan’s repayment terms before you sign anything. If the repayment schedule is too aggressive, it could put your business in a difficult financial position down the road.
Avoid the Above Common Loan Application Mistakes
Loan applications can be tricky, but by avoiding the common loan application mistakes listed above, you’ll improve your chances of getting approved for the funding your business needs.
If you’re ready to start shopping around for a small business loan, ensure you have the proper documentation and research different lenders to find the best fit for your business.
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