In business, borrowing is often necessary, no matter how undesirable. Business loans are part of the game. Being approved for such a loan is like winning a race of some kind. It’s the big bet for the future, and without it, there is no way to move on. So far, so good – we know that. But there are things that business people don’t seem to understand. Given the way, they act when applying for a business loan.
Let’s see the selection below of the top 10 rated most common mistakes when taking a business loan. We at the Dope Lists don’t want to see you making them, too.
You do not know your own credit rating.
Before applying for a loan, you need to know where you stand, what position in the rating for a potential borrower. It’s not complicated – just take copies of your credit scores from major credit bureaus to determine if you are likely to be approved for a business loan. Investigate how consumers view you, whether a bad name of your business or company has accidentally formed, whether any of your previous blunders have not permanently affected your reputation. All this forms your credit rating. Which bank would trust a bad player? Find a way to show a good name, a solid strategy, and a compelling vision for your future.
You do not read the terms of the business loan agreement carefully before finally signing it.
We understand that reading every single word is annoying and time-consuming, but remember: the bank has no right to pressure you to hurry! When you are speeding in getting a loan, you can make the most common mistake by skipping the small print, reading it diagonally, and simply signing. The tricks are in that small font that makes your headache. That’s right, but you just have to read the details in terms of the loan. Not only do you have to take the time to read everything very carefully, but you also are to ask questions about anything that is not completely clear to you.
You do not give a clear explanation of what exactly the loan is for.
When applying for a business loan, you are required to indicate what you will use the money for. Lenders want to see that you know what you want. You know exactly what your needs are and how this particular loan will meet those needs. Do you guess that the bank will not give money just like that? If you were the other side, it would not be so easy to trust, isn’t it? It is much clearer that whoever has a clearly defined business strategy and plan according to the main and side factors has a better chance of being approved for the loan.
You do not have a proper business plan.
If you start a business, you need to demonstrate how the company will work and make enough money. The specific business plan is extremely important for the lender to see your goals and, particularly, how you intend to achieve them. You should include all relevant supporting data in your business plan. Also, you need to protect it at every point so that the bank can truly trust you.
You do not lock a rate.
Interest rates are changing, unfortunately. If you think you have found a good percentage, lock it while it’s time and it hasn’t gone up. One of the most common mistakes when applying for a business loan is susceptibility to greed, i.e., people wait for interest rates to fall further. In reality, this is misleading. Be careful not to stay played, so lock a course that seems optimal to you. Greed is a devilish thing, and in this case, it can ruin your plan.
You make significant changes just before applying for a loan.
Courage is an excellent quality, but just as you don’t want to open and close different credit cards before you decide to apply for a personal loan, you wouldn’t like to make significant changes to your current business structure. This can indicate you as an unstable and unreliable borrower. Lending banks are willing to grant you a loan when seeing stability in the way you run your business, as well as whom with. You and your partners are in a system that shapes your credit rating. The time for significant changes is not when you decide to take out a business loan.
You apply only to the most convenient bank.
Although there are different lenders in a particular area, many people still go to the local bank first because it is more convenient and closest to them. When you take such an essential step as applying for a loan for your business, you must announce a competition or do your own research of national and even international banks. This does not require who knows what resources – just send emails or letters describing your business goals. Then, you are waiting for the answers of the banks, as each of them will provide you with its proposal.
You have not updated your finances.
No matter what kind of loan you are applying for, you should not do it without first having the appropriate financial documentation. It sounds logical and indisputable, yet some people seek a business loan without ensuring that their financial data is up-to-date. This is a step that does not require much effort. Anyway, it would help if you had an update on finances because you will reach this point. But it would be unpleasant to be denied a loan just because you were not prepared with your financial data.
Lack of fairness in the project.
Having equity in a business project significantly increases your chances of getting a business loan. If you have not invested your own funds in the project or in your business as a whole, the lender would not be happy to take the risk of approving you for a loan. In the eyes of the lender bank, you will look like a manager who does not like to give from his own capital but prefers to operate and, accordingly, risks with someone else’s one. Answer honestly: would you trust such a borrower?
You do not provide collateral.
You can be sure that you will not receive a loan for your business if you do not provide collateral in cases where there is a default payment. The bank relies primarily on security and returns. Any lender can’t trust you if you don’t provide collateral, and you only want to get money. Think about this before embarking on persuasive speeches about how reliable your business is and how you are gaining momentum in a profitable business. Anyway, the banks will not believe you if you don’t give collateral.
The above-stated mistakes often made when applying for a business loan seem ridiculous, and everyone would say: “No, it is not my way!” However, keep them in mind because no manager is perfect and is not insured against making these mistakes.
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