Business loans are a vital part of an entrepreneur’s or enterprise’s cash flow. Every business, regardless of its size, needs capital to function. At some point in your business, you might consider applying for a loan. And because this decision is a crucial one, you need to be very careful about it.
Financial decisions are not made in a vacuum. Banks and other lending institutions thoroughly assess all the documents and information submitted to making an offer. As such, when making this important move, make sure that you avoid all the pitfalls that could lead to your loan being disapproved.
So, what all do you have to keep in mind? To make things simple, we have compiled a list of 10 mistakes you should certainly avoid if you want to secure a business loan.
- No Business Plan
Getting money for a business plan yet to be documented is not only difficult, but impossible. To convince someone to back your business without a proper plan in place makes no sense. This goes for a scattered business plan as well. If your business plan is all over the place, the process of obtaining a business loan becomes troublesome. Try and sort out your business plan first. Make a detailed, informative plan and submit that copy to the lender.
- Poor Financial History
This plays an important part in your loan approval. If, for certain reasons, you have a poor credit history or have defaulted, then your chances of getting a loan from the banks are low. However, the finance market today is quite vast. You can approach a Non-banking Financial Company (NBFC) and secure a loan (at a higher interest as NBFCs are taking a big risk) to keep your business going.
- Poor Credit Score
Credit scores are heavily relied on when sanctioning a loan. Credit score reflects years of credit history. The score represents one’s fulfillment of priorities, duties, and responsibilities. The lender can gauge your dependability based on your credit score. Credit scores range from 300–900, and a score over 700 is considered good. Credit history cannot transform overnight, so ensure that you maintain a credible record.
- Not Reviewing Collateral Requirements
Even though business loans are generally unsecured, collaterals may be asked for in cases such as equipment loan, asset-backed loan, secured term loan, etc. as lenders may want to ensure timely loan repayment. As such, the borrower will have to submit collateral in the form of residential or commercial property. If you do not review collateral requirements in advance, you may find yourself in a fix in the future.
On Finserv MARKETS, the Bajaj Finserv Business Loan offers high loan amounts of up to Rs. 30 lakhs with zero collateral requirements. The application process to avail of an online business loan on Finserv MARKETS is seamless and hassle-free. You can even opt for repayment tenures ranging from 12 to 60 months, as per your financial convenience,
- Multiple Loan Applications
Applying at several places for credit does not reflect well upon the business. The lenders sense desperation and doubt the potential borrower’s capacity to repay loans. Therefore, apply for loans responsibly.
- Stretching your Affordability
Going beyond your means and applying for a higher loan amount will not do you many favours. At the time of sanctioning loans, banks will require all financials and income proofs to approve the loan amount. On a mismatch of loan seeker’s financials and loan amount, the lender will raise a question on the repayment ability.
- Avoiding Reading Loan Agreements
Yes, those very long documents filled with jargon – you’re supposed to read them completely. Take your time to understand all the details. There are hidden charges and clauses, and you should be aware of those. Don’t be a rush to sign the agreement without having gone through it carefully.
- Making Significant Financial Changes
Last minute important changes in your documents are not appreciated by the lender. This also makes the lender doubt the vision and understanding of the borrower. Last minute changes and lack of overall planning can also affect your credit score. Again, don’t be in a rush, make sure to check and recheck all the paperwork.
- Applying for the Wrong Loan Product
The financial market is filled with hundreds of types of loans. Make sure to do your part of research and talk to experts before jumping into a category and submitting an application. To comprehensively research the product is an important step before seeking a business loan.
- Missing Out on Business Information
You should take extra caution to maintain a record of every document and information you need to submit when you apply for a business loan. Providing accurate and correct information should be the borrower’s priority. Key information should be cross-checked. Making mistakes on the application can lead the lender to doubt the loan-seekers’ authenticity.
With these simple checks and balances, you can make the process of applying for a business loan much simpler. It always pays to practice caution, and in crucial matters such as these, be extra cautious.