Applying for a Business Loan? Don’t Make These 7 Mistakes
While most entrepreneurs would ideally generate enough cash to fund every growth initiative and pay for every emergency, sometimes, that’s simply not an option.
Sometimes, small businesses must raise debt.
Business loans can provide the financial boost you need to expand operations, bridge a cash-flow gap, even launch a startup. But you’re not guaranteed to get approved for a loan — mistakes made during the business loan application process can cost you time, money and even the all-important green light.
Don’t panic. Just read on, and we’ll help you sidestep some of the most common blunders.
Mistake #1: Skipping the Prep Work
It probably goes without saying, but applying for a loan isn’t a “show up and hope for the best” kind of deal. Lenders want to see that you’re serious about your business, and that starts with preparation. First and foremost is a rock-solid business plan that shows lenders you have your act together.
What to do: Write or update your business plan to include clear goals, financial projections and a strategy for growth. Be ready to explain how you’ll use the loan and how it fits into your overall business objectives. This isn’t the time for vague ideas — get specific.
Mistake #2: Neglecting Your Financial Records
Lenders are going to take a magnifying glass to your finances. Missing documents, inconsistent records or unaccounted-for expenses can stall your application or derail it entirely.
What to do: Organize your financial statements, including income statements, balance sheets and cash flow statements. Make sure everything is up to date and accurate. If you’re not confident in your record-keeping, consider hiring an accountant to help you get everything in order before you apply.
Mistake #3: Relying on “Cookie-Cutter” Applications
Sending the same application to every lender might seem efficient, but it’s not effective. Different lenders prioritize different factors, so a one-size-fits-all approach won’t cut it.
What to do: Tailor your application to each lender. Research their requirements and preferences, then customize your materials accordingly. Show that you’ve done your homework and understand what they’re looking for in a borrower.
Mistake #4: Ignoring Your Credit Score
Your credit score is one of the first things a lender will check. A low score can raise eyebrows and potentially lead to a higher interest rate — or worse, a rejection letter.
What to do: Pull your credit report before you apply. Check for errors and dispute any inaccuracies. If your score needs improvement, focus on paying down debts and making timely payments. Even small improvements can make a big difference when it’s time to secure financing.
Mistake #5: Asking for the Wrong Amount
Believe it or not, it’s possible to ask for too little — or too much. Overestimating your needs is more a concern on the application side; a too-large request might make lenders wary. On the flip side, if you underestimate, you might need to scramble for additional funds later.
What to do: Don’t guess — crunch the numbers. Determine exactly how much money you need and why. Include room for contingencies, but don’t inflate the amount unnecessarily. Show lenders that you’ve carefully calculated your needs and are only asking for what’s required to achieve your goals.
Mistake #6: Forgetting to Shop Around
Not all loans are created equal. Different lenders offer varying terms, interest rates and fees. Going with the first lender you find could mean missing out on a better deal elsewhere.
What to do: Compare multiple lenders. Look at traditional banks, credit unions, online lenders and alternative financing options. Pay close attention to interest rates, repayment terms and any additional fees. Remember, this loan is an investment in your business—choose wisely.
Mistake #7: Overlooking the Fine Print
The fine print might not be thrilling, but it’s critical. Hidden fees, prepayment penalties and confusing terms can come back to haunt you if you’re not careful.
What to do: Read every word of the loan agreement. If you’re unsure about any terms, ask for clarification. Better yet, consult a financial advisor or attorney to review the document with you. Understanding the terms now can save you from headaches (and potential legal issues) down the road.
Applying for a Loan? You’ve Got This (And We’ve Got Your Back!)
Applying for a business loan doesn’t have to be a daunting task. By avoiding these common mistakes and staying proactive, you’ll position yourself as a strong candidate and increase your chances of approval.
If you want help applying for a small business loan or any aspect of small business financing – we can provide support. McManamon & Co. offers consulting services to small and midsized businesses, including showing businesses how to navigate the business loan application process.
Ready to get started!? Call us at 440.892.8900 or contact us online today.
Tags: financing, small business, small business accounting, small business finances, small business financing | Posted in Financing, McManamon & Co., small business, Small business finances