5 Mistakes When Applying For A Business Loan

mistakes applying for business loan

A business loan can make or break a company. The pandemic left the UK’s economy in shatters, and some industries are struggling to recover. As the world starts to recover from Covid-19, businesses are returning to their day to day operations. Recovery is the primary aim of most SMEs and some larger corporations. 

The Coronavirus pandemic most impacted the airline, restaurant and oil and gas industries. Flights were grounded, and restaurants closed for months on end in 2020 and the start of 2021. Businesses within these sectors may need a loan to help them recover from the pandemic and get back on their feet. 

There were temporary financial assistance programs for businesses from governments, but most of those have ended by now. Small businesses are back seeking more loans to keep themselves afloat or to adapt to the new economy.

Business loans tend to have looser screening standards than bank and public loans. However, even the smallest mistake on an application can result in the refusal of a business loan. If you are looking to apply for a business loan, here are a few common mistakes to avoid. 

Not Knowing How To Use The Loan 

A business loan can be a life raft for your company, but only if you use it effectively. Plan exactly how you are going to use the loan and map out every penny. You need to prove that you are responsible and equipped to receive a company loan. 

Have A Clear Business Plan 

Make a detailed business plan to give the potential lender a better grasp of your company. You could identify how much funding you need, how you will use the money and how you intend to repay the loan. 

Applying For Multiple Loans 

If you apply for multiple loans, lenders may be concerned that you cannot repay the amount you borrowed. Remember, lenders want their money back, and you need to prove that you can afford to take out a loan. Choose your potential lender wisely and avoid sending out multiple loan applications. Also think about what could happen if you are approved for multiple loans with high interest rates, especially if it is compounded with private loans and/or credit card debt. You will need to stay very organized and on top of payments to avoid missed loan payments and penalties.

Applying For The Wrong Kind Of Loan 

You need to select the best loan for your company. Do your research and apply for the loan that suits your company, sector, and financial situation. Before closing any loan, you need to make sure it outweighs any other potential option. A business loan is a big commitment to make, so take it very seriously. 

Poor Financial History 

Missed payments on previous loans can have a detrimental impact on your credit score. Look at your financial history and assess whether you need to improve your credit rating before applying for a loan. Credit scores can range from 300 to 900, and any number above 700 is considered a high credit score. A strong credit rating can make it easier to find low-interest rates on business loans. 

The Botton Line On Business Loans 

Avoid these common mistakes, and you are more likely to receive a business loan. Keep these financial tips in mind to maximize your chance of approval while minimizing interest rates and fees or the need for a loan cosigner.

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