Common Mistakes to Avoid in Your Unsecured Small Business Loan Application
It is a big step for any small business to apply for an unsecured small business loan. The process of filling out the application for business loan can in itself be daunting and time consuming. To make matters worse, your unintended errors while filling out your application can adversely affect your chances of getting a business loan. Here is a list of some common mistakes that you should avoid making on your application for business loan.
A business loan for a small business can be difficult to get since your lender needs to be sure that your business has the potential to repay the loan. Further, despite your best efforts to showcase the small business in the most positive way on an application for business loan, it is easy to falter.
Here is a list of errors that small businesses often make on the loan application that can put your crucial unsecured small business loan in jeopardy:
Not Checking Your Credit Report
The best way a lender gauges how you will handle loan repayment is to study your past record. In the case of a small business, there is typically no credit history as the business is new or has not been previously financed. Therefore, small business loan providers are cautious when extending loans to new and small businesses. In these situations, they check the personal credit history of the business owner. It is therefore necessary that you check your personal credit history and correct any errors that are showing by writing to the concerned authority or address the issues you have had in the past with having a conversation with your lender.
Not Checking Your Cash Flow
While large debt will certainly not impress small business loan providers, one of the most important elements that a lender looks for is the cash flow of the start-up that may be used to repay the loan. It is thus important to review the cash flow statements to ensure that your business will be able to service the business loan. If not, then set the cash flow right before approaching small business loan providers.
Not Providing a Sound Business Plan
Just as in life, every business needs to have a concrete business plan, goal or a direction on which it is moving and plans to move in the future. A business plan typically lists business goals and describes the strategy behind attaining them. While some lenders may state that a business plan is optional, attaching one can seriously improve the chances of your getting the business loan. Since the business plan reveals the depth of knowledge that only the entrepreneur has as well as logical predictions of future revenues, the information it contains can often work in your favour.
Overstating the Expected Growth
It is necessary to have aggressive targets but ensure that you are able to explain how you will be able to achieve them in your business loan application. A common mistake made by overzealous entrepreneurs is to overestimate their business growth without being able to adequately substantiate this figure with facts and figures. Avoid doing this and, in fact, stay a little on the moderate side when describing this figure.
While the business loan application process can be cumbersome, it is necessary to be clear on what documents you need to submit in order to avoid confusion. Often, in their hurry, business owners have all the documents needed but forget to submit the crucial information to their lenders. This not only makes your application incomplete, but also makes you look unprofessional, unorganised and tardy, all of which can put a spanner in the works of getting a business loan sanctioned.
So be aware of the pitfalls, and try to take your time while submitting your small business loan application. In your search for the right lender, consider Bajaj Finserv, which promises a hassle-free online application that requires minimal documentation.