5 Mistakes To Avoid When Applying For A Business Loan
One of the things you must learn to do as an entrepreneur is how to apply for a business loan. Having a great business idea is not all that matters; you must find a way to finance that idea. Capital is the life wire of any business, but raising it can be a huge challenge.
Do you know that more than 30 percent of small businesses shut down because they run out of funds? If you don’t want your business to fall into this category, you must apply for loans in the right way. This post will explain the common mistakes that you should avoid when applying for a business loan.
Mistakes that you mustn’t make when applying for a business loan
Many owners of SMEs in Africa wonder why they apply for loans and don’t get them. We all know that money is available. How come our loan applications keep getting declined? Simple, you are making mistakes in your application. Here are some mistakes that you should avoid:
Poorly updated or non-existent financial records
This is one of the most common mistakes that entrepreneurs make. You can’t submit a loan application to a financing body with poor or non-existent financial records. How are these bodies going to know the financial situation of your business?
You must have records of the financial information of your business. Ensure that such information is tangible and very clear. Most times, business owners cook up this information once they know that the banks need it. What they forget is that the banks will always run a background check.
Once the bank discovers that you presented false information in your application, they decline your application. Do you want to improve your chances of getting that business loan? Start updating your financial records today. You can use invoicing and accounting software to make the work easier.
Misunderstanding the loan requirements
Again, this is a common mistake that many business owners in Africa make. Once they hear of an opportunity to apply for a loan, they rush to submit their application. They don’t take enough time to study the requirements of the loan or the lender.
Every lender makes this information available to any owner of an SME in Africa that wants to apply. It is your responsibility to read through these requirements, either on their website or at their office. Check to see how much they can dispense, the required credit score, and the stage of the business. These are just some of the requirements you will require to meet when applying for a business loan.
Not having information about your credit score
This is one of the biggest mistakes anyone can make before applying for a business loan. If you have a poor credit score, your application is very likely to be denied. Sometimes, you may have issues with your score that you have no information about. This is why you should always check.
Why would a lender check your credit score? Firstly, no one wants to loan money to an individual or business that is notorious for not paying back. The credit report will show how dependable you are concerning repaying debts and paying your bills. It tells if you can be trusted or not with money.
As the owner of an SME in Africa, you should check your credit score frequently. This is a very important stepping stone as you progress as an entrepreneur. When you have high ratings, you improve your chances of getting the business loan you apply for. It also influences the speed of approval in comparison to people with lower scores.
Poor or incomplete documentation
If you have submitted a loan application before now, you will agree that there’s a lot of paperwork. Many business owners don’t have the luxury of time to complete such forms. Not because they don’t want to, but because they have a million other tasks to complete. However, this isn’t an excuse to run through the application forms and missing out on vital information.
A lot of information is required from you, especially when you are getting a loan from a bank. You need to provide pieces of information like tax returns, cash flow, etc. Once you don’t, you will be delaying the approval process or even truncate it.
In some cases, you may even miss out on some vital business information. Some of them include:
· Business name
· Business address
· Email address
· Tax Identification Number
The lender will not overlook errors in providing such details. If there are discrepancies, your loan application may end up declined. The same goes for when some of these pieces of information are not available.
No business plan
Every journey requires a road map, especially one that you are embarking on for the first time. This is what a business plan is to your interesting business idea. It is the roadmap that helps to lead you towards achieving your business objectives.
Banks and other lenders always require you to submit a business plan along with your business loan application. Why? They want to know about your business, its operation, financial projections, and profitability. They must invest their money in a business that has ambition, goals, and a target market.
Business plans enumerate all of this information. You must carry out in-depth research before writing a business plan. If you don’t have experience writing one, you can contract ta professional writer’s services. Ensurehat you state ways to gain revenue for the business, list your competitors, and your SWOT analysis.
You no longer have to apply for a business loan and get denied after each application. We have shown you some of the most common errors that business owners make when submitting such applications. Which ones have you made before now? Share them with us in the comments section below.