Mistakes to Avoid When Getting a Business Loan
People apply for business loans for one of two reasons. In some cases, it's because something negative has happened. Maybe the pandemic has resulted in slow sales, and the business owner is struggling to keep up with payroll. Maybe a piece of equipment broke, and now the business owner has to finance a new one.
In other cases, the need for a business loan signals a positive change. For example, maybe the business has grown so much that it needs a bigger space.
Whether positive or negative, business loan applications can come with high levels of emotion, and when that happens, loan applicants can make mistakes. Making mistakes can cost you your loan, so it's important to avoid the most common ones. Here are some mistakes that loan seekers make most often.
Putting All the Eggs in One Basket
Some business owners only send out one application. They choose a bank, apply for a loan, and then hope for the best. That may work if you run a well-established business and have developed a strong rapport with a specific bank. For most business owners, though, this process doesn't work. If you count on a single bank, then what happens if your loan application gets rejected?
Instead, consider several financial institutions, and don't go straight to a predatory loan with high interest rates. If you're worried about your credit score or collateral, try some community banks. Credit unions can also make great loan sources.
Whatever institutions you choose, make sure that you choose more than one. This way, you'll increase your chances that someone will approve you for a business loan.
Rushing or Lying on the Application
Business loan applications get rejected for a lot of reasons, but one of the biggest reasons is inaccuracy. For example, some business owners lie about their credit scores in hopes of getting approved. This information will be checked, so it's better to be honest and upfront.
Sometimes, misinformation happens not because of lying but because of rushing through the process. Either way, submitting the wrong information can get your application thrown out fast, so make sure that you double-check your applications before you send them. You may not have a lot of time, but a rejected application will cost you a lot more time than a double-checked application.
Not Knowing Your Options
Sometimes, business owners make the mistake of not knowing their options. For example, a business owner may believe that a loan is out of the question due to a low credit score or no collateral. However, some local banks and credit unions are more likely to approve loans than megabanks, even with a low credit score. Meanwhile, certain loans, such as lines of credit, don't require collateral at all.
Other business owners may avoid replacing equipment out of fear of high loan prices, but they might find equipment-specific loans that come with low interest rates.
Do your research and compare your options. You may find that you have more than you realize. You can start by comparing choices on Bundlefi. We match customers to community banks, credit unions, and other small financial institutions.