10 mistakes you should avoid when applying for a loan for your business
To start a business or expand it, you need capital. Borrowing from banks and other entities is an option to raise the necessary funds. Increase your chances of being approved by memorizing these Mistakes to avoid when applying for a loan for your business brings Hispanic Entrepreneurs.
Traditional banks and other types of lenders offer financial for entrepreneurs. However, before handing the money over to anyone who applies, they assess the risks very well.
Every lender wants to make sure you put your money in the hands of someone responsible. That the business has a vision for the future and that it will be able to recover its money. That is why they will carefully analyze each request, looking for warning signs.
As an entrepreneur, you may be facing a commercial loan application for the first time. Or that you have done it before and you have been rejected. There are mistakes that are very common when applying for financing. In the following list you will find 10 of these so that you do not commit them when requesting a loan for your business.
Mistakes to avoid when applying for a loan for your business
If you do not want lenders to reject you, you have to avoid these mistakes when applying for a business loan.
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1. Apply for a loan without knowing the credit score
One of the most common mistakes when requesting small business loans is to ignore the credit score of the business. Those who are aware of this score and understand its meaning are more likely to get the loan.
Before submitting the application, request a report from credit bureaus such as Equifax or Experian. Check it to make sure all the information is up to date. These documents contain all the financial information, including debts, payment dates or if there is a bankruptcy statement. Be prepared to explain to the lender the reasons for any negative situation.
In addition to the business credit score, it is also recommended to present the personal report.
2. Not having a guarantee
Offering a guarantee is one of the main requirements of every lender. This is your way of protecting yourself in the event of non-payment. So presenting a guarantee to the seek business financing will increase the chances of getting it.
The guarantee can be money saved, material goods such as a car or a property, certificates of deposit, among others.
3. Lack of a business plan
If you need a business plan or not, it is one of the questions every entrepreneur asks. To request financing a business plan is essential, it is among the requirements that any lender will ask for.
The plan describes the business, offers market characteristics. Indicates what the financial projections are and how they are to be achieved. It will help you convince the lender as well as calculate how much money you need.
4. Submit incomplete requirements
Having incomplete documentation will not only delay the process, but can lead to denial of the loan. Carefully read what the lender's requirements are and make sure you meet them all.
5. Do not explore the various options of lenders
It is normal that when you need a loan you go to the bank with which you do business. But you should know that this is not the only option you have. There are other entities willing to offer financing and financial support to start a business.
Research what alternatives you have. You can even find out if you are a candidate for a government institution financing program. There are many types of lenders you can turn to, not just traditional banking.
6. Borrow from reputable lenders
The previous point does not mean that it is convenient to resort to any person or institution. Research the lender's reputation before applying for financing. In some cases it will be difficult to know its history, if you do not get any reference it is better to discard it.
7. Be imprecise when saying what you need the money for
Another reason they often reject loan applications is because they don't specify what the money is needed for. The lender will ask you for this information and you must explain why you need the loan and how you will use the money. Show that you have a solid plan.
8. Do not calculate the real cost of the loan
Make sure you know the actual cost and whether you can take on the entire debt before signing the contract. The lender is not going to tell you, therefore you should keep in mind what the associated expenses are. If this topic is complicated, seek advice, you can also use a business loan calculator.
9. Sign without understanding the terms of the loan
The procedure for get a loan to start a business it is more than carrying the papers and explaining your business model. You should pay close attention to the terms and conditions of the lender. Read the contract well and if you have questions about any point, clarify them before committing.
10. Make changes to the application
You must be consistent from the moment you apply for the loan. After presenting the documentation, you should not make changes such as asking for a different amount or saying that you will use the money in any other way.
These are the mistakes you should avoid when applying for a loan for your business. If you want to know more about entrepreneurship, we invite you to read our magazine digital.
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