Most small business startups need financing during the early stages of their development. If you are thinking of taking out loans, just remember there are a few things you should keep in mind while applying for loans. Of course, getting a loan from a bank is no cakewalk these days, particularly for small businesses. Any negligence or error in business application form may lead to disapproval.
Below are some of the most common mistakes made when applying for a bank loan. So, you need to check them out before submitting application for a loan.
Underestimating the Value of Personal Credit
Your personal credit is a major driver when applying for startup or small business funds. Bankers look at your personal credit history (credit cards, mortgage payments and personal bills) to get a sense of your track record with financial responsibilities. If you don’t skillfully handle your own finances, you likely won’t do that for your business either.
No Business Plan
You must be able to demonstrate a viable business plan when applying for a loan. During the loan application process, bankers are looking for a solid strategic plan, along with financial projections. Lenders would like to know exactly how you will use the loan you are taking out. Also, be sure to explain why the loan is critical for your business.
Unfamiliarity with Terms
One should avoid another common loan mistakes which most loan applicants make. They do not make any sincere efforts to understand the terms and conditions attached with the loan. You should not only take the time to read everything very carefully, but you should also ask questions about anything you do not fully understand.
Wrong Loan Type
If applying with the wrong type of lender, or choosing the wrong type of loan program, your mortgage application may be denied. As an example, if you buy a piece of machinery with a loan that was proposed to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under. Since each type of loan will be evaluated differently, having to reapply for another loan type may take extra time.