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Iceni Magazine | April 24, 2024

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Common business loan application mistakes and how to avoid them

Common business loan application mistakes and how to avoid them

Sometimes getting access to extra money is the best way to give your business the boost that it needs is.

Everyone knows that starting up a business can be a challenge. However, there is support available in so many ways. From knowing how to bid in philgeps to being aware of the loan options available to you, you must always do your research properly when starting out. There are various forms of commercial finance that you can choose from. For many, a business loan is a useful resource that helps them to achieve their targets.

However, getting a business loan isn’t as easy as some people may think. Moreover, there are many easily made mistakes that will hinder your chances of approval, or else drive up currently high interest rates even further.

What are they? And how can you avoid them? Keep reading to find out.

Not knowing your credit score

If you’re going to be approved for a major form of credit like working capital business loans, it’s vital that you know your credit rating before applying. Not only will this tell you the likelihood of approval, but it will also save you from taking a hit to your credit score.

When the loan provider runs a check and your credit fails, it negatively affects your score, making it harder for you to take out loans in the future. To avoid this, use an online credit checker or debt test.

Not seizing good rates

Interest rates change rapidly. If you are offered a good rate on a business loan but put it off for a few months, you may find that the rates have skyrocketed. For this reason, you should sign off on the good rate that you’re offered without delay so that you have it locked in.

Not having up-to-date finances

One of the most common problems that business owners face when applying for loans, is that they don’t have their most recent documents. You shouldn’t even talk to a loan provider until you’re certain that you have all of your documentation squared away and ready to go.

Not having a business plan

Especially if you’re just starting your business, you need to demonstrate how it’s going to operate and make profits. Lenders want to see your goals and how you can feasibly reach them before investing money into your business. Your supporting information and documentation will go a long way to demonstrate this to them.

Not having collateral

Lenders require you to give up something valuable, such as property, equipment or vehicles, in the event that you’re unable to repay your loan. This is called collateral. It’s crucial for gaining the confidence of the loan provider and lowering the interest rates of the loan they offer you.

The bottom line…

Having everything that you need ahead of time can help you to avoid rejection, a poor credit score and expensive interest rates. Most business loan application mistakes come down to a lack of preparedness, so by taking the time to plan ahead, you can avoid them and boost your chances of approval.

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