Common Mistakes Made When Applying for a Business Loan | Business Broker in Grapevine, TX
Credit dealing is a very delicate issue. Your credit history, your business records and even your personal spending patterns affect your credit records, and come into consideration especially when you are applying for a loan. People oftentimes make financial mistakes, which they think can never affect their chances of getting the loan approved. Here is a list of common mistakes that people make when applying for small business loans.
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Using too much credit
Your credit history and how you deal with your credit matters a lot when you are out asking for loans from the bank. The more expenses you will pile up on your credit card, the more interest will accumulate and the chances of you not being able to pay it back increases, which will adversely affect your image in the credit world. This is why it is important that you keep your credit use in limit and not max out on it.
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Not preparing your documents
When asking for loan, you must remember that the bank goes through a thorough process of documentation. Before applying for the loan, make sure you have all the necessary documents with you, attested and original. And those documents which you don’t know about, its better you do your homework and look online for the documents that will be needed by the lenders. This is important so that you get your loan approved quickly and without any complications.
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Not reading the agreement documents carefully
Often times it happens that in the haste of signing the loan agreement, people do not pay too much attention to the fine print in the agreement and overlook many important details and conditions. This becomes a problem in the end. This is why, while signing the final agreement, carefully read the terms and conditions and every written detail. Nothing is ever written without a purpose in an agreement.
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Thinking of loans as a safety net
Sometimes, people borrow money just to be on the safe side, to have some extra cash. Do not make this mistake. The thought that you have more money in your bank account will only make you splurge on unnecessary expenses will make it difficult for you to reach your actual business goal.
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Being too eager and not choosing the right offer
When applying for business loans, look around for different loan offers provided by different lenders. There are many public and private loan lenders and each provides finances at different interest rates and policies. Look around and wait a while before you finally choose your lender.
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Making late payments
Paying late is strictly a no no! In credit world, it is a very easy way to tarnish your credit records. It gives off a bad impression. Other than that, if you miss out on your payment, the amount will keep accumulating over the course of time and cause you trouble in the end. Also, as we all know that everything is recorded, so with tainted credit history, you will have problem acquiring loans in future.
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Not doing the research
Do your homework. Knowing that you need money for running a business is simply not enough. You need to be sure about the kind of loan you need, and also assess other potential source of generating finances.
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Not having a business plan
The bankers would want to know the purpose of you acquiring the loan. Not being sure enough and giving a vague answer will only damage your chances of acquiring the loan. Prepare a written draft entailing your business plan, how you plan to go about it, what channels this money will be invested in and, most importantly, what exactly is your business about. Do not go with a simple wish to start a business and not being sure about it. You being unsure will only make the lender think that you are not serious enough.
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Not having good business record
If you are seeking loan to support your business and not for a start up, then it is important to keep your company’s financial records straight without a bad turnover. Keep all the red flags in check because the lenders will be very much interested in knowing how your business is currently performing, as they do not like investing in a sinking ship.
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Not maintaining the records
Often times, the bookkeeping in any business is left for the end of the period and, many a times, it is not maintained at all. This habit may damage your chances of getting the loan approved, as there will be many inaccuracies and discrepancies in your records to support your business’s stake in front of the lenders. The impression that you are not being careful with your finances will only put the lender in doubts about giving you the loan. Mismanagement never leaves a good impression.
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Not being confident about the outcome
The lenders will be more likely to loan out to you if they are sure that the money will invested into a profitable means, because that is what will ensure the recovery of their investment. This is why you need to be very confident and lay it down in front of them, as how exactly the money will benefit the business and what will be the end results.
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Getting multiple credit cards instead of applying for loan
Sometimes instead of going for the loan, people apply for another credit card to gain extra funding. Having an existing credit card with maxed out limit is already enough to give a bad impression, and getting a second credit card will damage your overall credit report.
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Only relying on banks for the loan
Banks are not the only sources to offer loans. Nowadays many alternative lending sources have emerged that offer loans to people for small businesses. These sources include funding circle, credit junction, Bond Street, etc. They are much easier to get, however they would charge higher rates.