Avoid These Common Mistakes When Applying for a Business Loan
As a business owner, the time may come when you need to borrow money to grow your brand and make the necessary improvements for your company to thrive. Though applying for a business loan is relatively simple, there’s no guarantee that lenders will grant you the money you need. In fact, many business owners end up making mistakes that cost them the opportunity with lenders every day. Here are a few of the most common mistakes businesses make and how you can avoid making them yourself.
Not Having a Clear Business Plan
Lenders need to have confidence that your business will be able to repay the money they loan you with ease. This means you’ll need to show them your business plan before they can reach a decision. Your business plan details how you operate, your normal earnings, your budget and your plans for the future. Modify it for the loan application and outline how you’ll use the money you receive as well as what you’ll do to make the minimum monthly payments until the loan gets paid off. If you’ve been in business for a while now, you should already have a business plan in place. If not, write one before you start speaking with lenders.
Not Correcting Low Credit Scores
Many lenders consider business owners’ credit scores when reviewing applications. If your score is on the low end (below 650), you’ll find it tough to qualify for a loan of any amount. Before you apply for a loan, check your personal credit score and see where it stands. If it’s over 650, you’re ready to apply. If it’s below 650, you’ll need to build it back up before applying for a loan. Repay any outstanding debts and avoid taking out new loans or credit cards before you take out your business loan.
Applying Too Late
If you’re like most business owners, you think it’s best to wait to apply for a loan until you know you need one. Unfortunately, this almost always backfires. Lenders can take several months to review your application and reach a decision. If you wait until you desperately need the money, you may end up having to make cuts to your operating budget to survive until you get the loan. Instead, try to apply as soon as you think a loan might be useful. Don’t wait until your business is struggling to get financing.
These are just a few of the most common mistakes business owners make when applying for a business loan. Avoid making them yourself and you’ll be in good shape no matter what type of financing you’re applying for.