Traditionally, small businesses find it challenging to access additional capital, like loans from banks. It’s important to avoid rookie mistakes or lenders may not take your request seriously.
1. Don’t max out cards
Simply put, if you are looking to get a business loan (or a loan of any type really) maxing out your credit cards gives a bad vibe. In addition to increasing your overall debt, it lands you with a larger interest rate too.
2. Don’t ignore fine print
Never forget to read the fine print on any loan you are offered. It is the most common mistake when getting a small business loan, and it can be costly later.
3. Don’t ignore lender requests
When you are looking for additional capital for a business, be ready that a lender could request all sorts of information from you once the process starts. You should be ready to reply to any questions or information they may request. If you can’t answer straight away, don’t delay and get to it as quickly as possible − you don’t want to keep them waiting.
4. Don’t borrow for additional cash only
Another mistake is getting a loan just for having the extra cash on hand. This is not a good idea. Having the added cash could lead to temptation to spend it faster than needed, eliminating any goals you may have had for the money.
5. Don’t forget to shop around
You wouldn’t go with the first vendor or product that comes along, would you? The same goes for small business loan lenders. It is important that you shop around to compare their benefits, and find the one right for you.
6. Don’t miss payments
It is common sense that late payments are negative in all aspects. Not only they look bad to the lender, but can also increase your fees and penalties and lead to larger payments. To add, they can reduce the chance of getting additional capital in the future.
7. Don’t allow your personal credit to go down
Getting a loan and maintaining a good credit score for your business is good and important, but you should not allow your personal credit to suffer. Covering business expenses with your personal money can damage your personal credit score, and this can affect your chances of obtaining a business loan when needed.
8. Don’t be undecided
Prior to contacting the lender, you should make sure that you fully understand what it is you want. That means getting out there and doing your research. By doing this first, you will be able to save yourself and the lender a lot of time.
9. Don’t get emergency loans
If you can get your business approved for a revolving credit line, it could save you a lot in the future.
For example, if your business is damaged severely, say by a storm, and it will take thousands of dollars to get everything fixed, it is best to have an open line of credit ready and available instead of having to go through the entire loan application process.
10. Don’t start without a plan
The first thing that the lender will ask is the reason why you want the loan. You should be prepared to answer this question right away and explain what your plans are for the money. Your plan should be clear and concise.
We hope that explaining these 10 common mistakes have helped you. If you know of any other mistakes, please share them in the comments below and look to other articles like understanding online loans and how to get a loan after bankruptcy for more help.