It’s no secret that many small businesses turn to borrowing money as a means of helping them get off the ground, develop, and succeed. Without business funding, many small businesses would have had a much slimmer chance of becoming the household names that they are today. However, when it comes to getting a business loan of your own, the process isn’t always as straightforward or easy as you might think. In fact, just one simple mistake before, during or after the application process can have disastrous results when it comes to the lender’s decision. So, we’ve put together a list of common mistakes that business owners make when they apply for funding, to help you avoid doing the same.
Mistake #1. Forgetting About Your Credit Score
If you were applying for a personal loan, then you would probably take the time to make sure that your credit score is up to scratch; this will help you better gauge your likelihood of being accepted and help you decide the best next steps to take. However, when applying for a business loan, many entrepreneurs forget to do this; many may think that since the loan is for their company rather than them, their own personal credit rating won’t be taken into account. However, this couldn’t be further from the truth. If you have a poor credit score, then you are more likely to be deemed high risk, making it more difficult for you to gain the funding that your business needs.
Mistake #2. Applying to the Most Convenient Lender
Another mistake that many business owners make when they apply for funding is simply going straight to the most convenient lender, with little thought as to how suitable they are. While it is great to be loyal to the local bank where you got your mortgage, for example, don’t count on the fact that a bank has lent money to you in the past for personal reasons. In fact, the more money you have borrowed from an institution, they may be less likely to provide you with more if the account has not yet been closed. Consider alternatives to your local bank, such as these government-backed small business loans available from Fundera.
Mistake #3. Failing to Bring a Business Plan
Today, many entrepreneurs swear by the lack of a business plan when it comes to their success. And, while these newer methods of agile business may be great for improving adaptability and allowing you to quickly make changes where needed, it can get in your way when it comes to getting business funding. Many lenders will still prefer the old-fashioned business plan method, as it allows them to get a better idea of your predictions for your company and what kind of turnover you expect in the future. So, even if you don’t think that the business plan route is for you, it can be a good idea to write one solely for the purpose of applying for business funding.
Mistake #4. Outdated Finances
Walking into your bank or any other financial institution without any current financial information for yourself and your business already puts you at a much higher risk of being rejected for funding. Along with your business plan, lenders will want to browse your past and current financial information; this will allow them to better determine your level of risk to them. Be sure to take a current financial statement for your business and any other associated documents such as tax information.
Getting funding for your business isn’t always straightforward. Avoiding these common mistakes will help improve your chances of acceptance.