Is your business in a cash crunch? Do you need some money to sort out a financial emergency?
Taking out a small business loan is an ideal way to raise the money you need. However, most mainstream lenders have a reputation of not lending money to small businesses like yours.
This, though, doesn’t mean you stand any chance of getting a business loan. There are lots of private lenders making loans to small business owners.
To improve your chances of getting a loan, you just need to avoid a couple of common loan application mistakes. Continue reading to learn more about these mistakes.
1. Not Knowing Your Business Credit Score
Wait, my business has a credit score?
If you’re asking this question, you certainly have never applied for a business loan before.
Businesses, just like people, have credit scores. Lenders use this information to establish your company’s creditworthiness before making a lending decision.
Don’t make the mistake of starting the loan application process without knowing your business’s credit score, or whether your business has a credit score in the first place.
If your business doesn’t have a credit score, your application will most likely hit a dead end. You might want to take steps to build a credit history for your business. You can start by taking out a secured business credit card.
If your business has a credit score but it’s bad or poor – maybe you’ve defaulted on another business loan – it’s advisable to rebuild it before applying for a loan. With bad credit, your application will likely be rejected. Or if it’s approved, you’ll be charged a higher interest rate.
2. Not Knowing Your Personal Credit Score
Do you own a sole proprietorship?
If yes, you and your business are one entity. As such, lenders are going to look at your personal credit score as well before they can approve your loan.
Get a copy of your credit report and check out your credit score. If it is in the red, rebuild it before you apply for the business loan. You already know why this is important.
3. Not Having a Detailed Business Plan
You and your business’ credit score are reliable indicators of your creditworthiness, but they’re not enough for any money lender to establish whether you’re able to repay the money you’re borrowing.
This is why you need to ensure you have a detailed business plan. The document fleshes out crucial details about your business, including your financial projections. The lender will be able to gauge your business’s profitability and, thus, determine your ability to repay.
In addition to a business plan, there are other documents you can attach to your application to improve your approval chances. For instance, if you recently signed a business contract worth a lot of money, include it.
Avoid These Loan Application Mistakes
Lots of businesses rely on loans to finance their operations. However, getting approved for a loan is another matter altogether. With this guide, you now know the various loan application mistakes you should avoid.
Keep reading our blog for more useful business tips and advice.