how to avoid the top 7 mistakes when applying for a small business loan
Money is something that’s always on the mind of all small business owners. Ideally, you’d hope to have enough money to keep your business running, but reality often throws business owners a different hand. While applying for a small business loan can help keep your business afloat, many business owners go about it the wrong way. Make sure to avoid the following seven things when you apply for your small business loan:
1. Failing to Keep Track of Your Credit Scores
When trying to apply for a loan of any kind, your credit score matters. This is especially true if you are applying for a business loan. It’s important to make a habit of checking and maintaining a healthy credit score for both personal credit, as well as your business credit.
Additionally, you’ll want to regularly check your business’ credit report. This information should be accurate and updated whenever you plan to apply for any small business loan.
2. Borrowing Without a Plan
Lenders want to make sure that borrowers have a plan for their capital. If a business owner simply wants to find ways to get extra money, they aren’t likely to be granted a small business loan. Similarly, it is unwise for a business owner to take out a loan if they don’t have specific plans for the money.
When applying for a small business loan, start by asking yourself what your plan is to use the capital. How will this plan and loan help to grow your business? Will it help to meet a particular financial need? Will the loan be enough or too much to meet this goal? By asking all these questions, you’ll be able to better understand why you need a loan. Moreover, you’ll be able to better explain to the lender why they should give you the loan.
3. Choosing the Bank for Business Financing
Small business owners often make the mistake of assuming their bank is the best option for business financing. However, in most situations, this isn’t true. It’s better for small business owners to apply for a loan specifically from lenders that focus on small businesses. The bank is a better option for individuals looking to purchase real estate, make a large equipment investment, or something similar.
4. Worrying that You Need Collateral for Capital
Oftentimes, many business loan lenders require borrowers to offer up collateral, but this isn’t always the case. With revenue based loans, merchant cash advance, and accounts receivable factoring, small business owners can have access to capital without collateral. Credit cards and business lines of credit are also an option as well.
5. Maxing Out Your Debt
While you can use a business line of credit to fund your small business, it’s never a good idea to max these cards out. By maxing them out, you’re showing that you cannot handle money. Lenders will assume that you’re over-extended and will be reluctant to lend to you. Moreover, after you’ve maxed out one line of credit, you’ll find that getting another credit card is much more difficult.
6. Ignoring Financial Problems
Ignoring any financial issues that you have is one mistake that you don’t want to make. While it is often unpleasant to address financial issues, this is the only way to get through them. In times like these, it’s best to sit down and figure out how you will get out of whatever financial problem you’re in. Otherwise, ignoring theses issues will only make the problem much worse.
7. Wasting Time
Time is one resource you’ll never get back. As a small business owner, you can’t afford to waste time. Don’t spend time you don’t have waiting to decide what loan to apply for. Your indecision may be what stands between your business turning a profit and you being forced to close your doors and apply for bankruptcy.
If you have to borrow money for your small business, don’t make these mistakes. With the right strategy and proper money management, you’ll be able to use this small loan to really grow your company.