Business needs are always in the expansion mode. On the road to build a better and stronger business, owners often need to resort to small business loans. Small business loans help the businesses through difficult times and help fund expansion.

Getting a business loan can be tough when the owner does not know the pre-requisites. Hence, it is crucial that business owners avoid certain mistakes while getting the small business loan.

Avoid-these-Six-Business-Loan-Mistakes

If you’re considering a business loan, maybe,you already have a list of to-dos to accomplish before talking to a lender. We have compiled a short list of pitfalls: six mistakes to definitely avoid if you want to improve your chances of getting a loan. Hope this will make things little easier for your small business loan.

Mistake #1: A Poor Business Plan

While applying for the loan, business owners need to have a solid, business plan. Lenders are hesitant to lend if they do not find essential details in the business plan like the mission statement, goals for the future,the target client base, estimated sales calculations and profit projections.

A Quick Tip:
A detailed business plan will show lenders that your business has a robust future road map so that it can pay the funds back in time with interest.


Mistake #2: Letting the Business Account Run Dry

A business may seek a small business loan if the business’s funds are running low. But, it is vital that a business shouldn’t let the bank account run too dry.A business with barely any money makes the lenders suspicious about the payments.

A Quick Tip:
Avoid negative cash flows,i.e.a lot of money leaving the business account, but not much going back in.


Mistake #3: Incorrect Knowledge of the Full Cost

Many fund seekers are unaware of the annual percentage rate (APR) while comparing loans.The APR denotes the total cost of the loan, including any fees and not just the interest rate. Hence it is essential that the loan seeker reads and understand the full terms of small business loans before fixing on one.

A Quick Tip:
Also,find out if there are any prepayment penalties for paying off the loan early as not all business loans have prepayment penalties.


Mistake #4: Depending Solely on Traditional Lenders

When we think about small business loans, the first thought is to go to a bank. But, banks are not the only choice and may not be a good fit for every business. A bank loan is more difficult to obtain if the business has a low credit score.

A Quick Tip:
Check out online lenders for small business loans, as they come up with many benefits and a quick loan approval process. Your loan can be approved within 30 minutes.


Mistake # 5- Ignoring Financials

Financial records give lenders a snapshot of the current business position. However, a regular mistake that business owners make when seeking small business loans is not spending time on the company’s financials.To get the required amount of loan, it is essential to have comprehensive accounting data of the current as well as the past years. This helps the lenders to determine if a business is secure enough to loan money to.

A Quick Tip:
Have all the documents and projections in place, like income statement projections, balance sheet, cash flow statements, and recent tax returns.


Mistake #6: Lack of Clarity on Use of Funds

Another mistake that business owners make when applying for a loan is not having a clear idea of how the funds will be utilised. While disbursing the funds, lenders want to see that the business has a proper plan to spend the money. The purchases or operations which will be enabled by the loan must positively impact the business. Owner fail when they are unable to explain the lenders the proper reasoning for the loan amount.

A Quick Tip:
Lenders are happy to lend out for:

  • Equipment and real estate related finance as a part of expansion project
  • A software development initiative which will bring long-term positive effects on the business
  • A loan for seasonal sale variance coverage

Some Final Words:

Make sure that the business accounts are in order as lenders will not want to give money if the business cannot keep an accurate track of it.Lenders like to see that their money is being put to good use and will deliver them returns. If you are unsure about your business plan inclusions, seek the help of a financial advisor.

Thus, it is vital for both new and experienced businesses to make sure that the information submitted is true and free from the above mistakes. Even a small mistake can make you miss out on very lucrative loan application. Make sure that the business idea is articulate enough to give the lender an insight into your vision.