7 Mistakes to Avoid when Applying for a Business Loan
While financial inclusion for small businesses is key to growing the nation’s economy, there are certain mistakes these businesses make when applying for funding that hinder their application from being approved. This ranges from not having a clear plan for fund use to not having a repayment plan, and more.
In this article, we’ll examine 7 of these mistakes and what to do instead to boost the chances of getting the funding of your dream. Let’s get started.
7 Common mistakes to avoid when applying for a business loan
The number of business loan applications that get rejected exceeds those that get approved.
While these can be attributed to various factors from the lenders to the business owner side, there are some mistakes that business owners make that easily disqualify them from getting their applications approved. Let’s see some of them below.
Mistake 1: Not researching the best loan option for you
Not doing your due diligence by researching the best loan option can lead you to applying with a company that doesn’t have your best interest at heart or for a loan that you cannot fulfill its requirements.
What to do: To start your loan application process on the right footing, research the various loan options and lenders available. There are different kinds of loans with different conditions and benefits, such as microloans, secured and unsecured loans, credit lines, cash advances, etc. so research each of them to know the best option based on your business type, and funding needs.
To choose the best lender or lending company to apply with, weigh factors such as ease of application, loan requirements, processing fees, the maximum amount that can be loaned, interest rates, and repayment plan.
Related: What to know before applying for a business loan
Mistake 2: Applying without a clear plan for fund use
Another mistake is not having a clear plan for how you intend to use the loan. Lenders need to see and understand how the funding you seek will help you generate more revenue or grow your business to assure them that you can repay easily.
What to do: Before applying for any loan, be clear on why you need it. This could be to get more equipment or workers to speed up the work process, to fund marketing budgets for more reach and conversion, leading to more sales and a boost in revenue, to fund operating expenses, such as payment for rent, etc.
Mistake 3: Asking for more than you will need or can repay
Asking for more than you need or can repay is an easy way to get into a financial mess and ruin your credibility. While it may be tempting to apply for more money, especially when you qualify for more, it could be detrimental to your business since you don’t need so much and will still be required to pay interest on it.
What to do: Before applying for a loan, calculate the amount you need and go for just that. Cut your coat according to your clothes, and don’t ask for more than you need or can repay.
Related: How to secure your business in the face of inflation
Mistake 4: Applying for multiple loans at the same time
Applying for multiple loans simultaneously will affect your credibility and make you look credit-hungry. In addition, you mustn’t make the mistake of applying for a loan when you are still servicing another. This will affect your cash flow and may trap you in an unending cycle of borrowing.
What to do: Research the most viable loan options available and apply for it. Also, ensure you pay off a loan before applying for another to avoid getting into a cycle of continuous borrowing and debt.
Must read: 4 Financial Numbers Every Small Business Owner Should Analyze for Growth
Mistake 5: Not having a proper repayment plan
Just as important as it is to have a fund usage plan, you should also have a fund repayment plan. Not having a repayment plan can lead to you defaulting on payment, which can affect your credibility and even bring on more consequences depending on the terms of agreement you sign with your lender.
What to do: Make plans on how to repay the loan, based on the amount you make in your business per month. Also, examine other sources of income that can come in handy for repayment, the flexibility of the lender, and how fast your business generates money to ensure you don’t default. This is key so you don’t ruin your reputation or lose your collateral in the case of a secured loan.
At Triift Africa, we give collateral-free loans, up to 1 million Naira, ensuring you get the funding to grow your business with ease. Apply for a collateral-free loan today!
Mistake 6: Disorganized and misrepresented financial information
Not having your financial information organized and updated is another red flag that may hinder you from getting your business loan application approved. Without a clear financial statement that shows how much you’ve made and can make in your business, the lender might not be convinced of the profitability of your business to trust you with a loan.
Another mistake to avoid is misrepresenting your numbers by inflating your profit margin or submitting a falsified cash flow report. This is ethically wrong and can make things go south.
What to do: Before applying for a business loan, ensure you have a well documented portfolio of your business finances, with details on sales, profits, expenses, cash flow etc. Also, do not come up with falsified figured in an attempt to get the loan by all means. This can complicate things in the long run, and even disqualify you from getting the loan.
You should read: 6 Cash Flow Problems Faced by Businesses and How to Fix them
Mistake 7: Signing the loan contract without reading it carefully
If you have ticked the “I have read the conditions and agree with it” section on an online form without reading it, raise your hands. Many of us do this, but you must avoid this blunder when signing a loan contract or agreement.
What to do: Before you sign any loan contract, you must carefully read and understand the terms and conditions attached, look out for hidden charges and clauses, check late payment penalties, seek clarification on technical terms, and even involve a lawyer if necessary. This is important so that you don’t agree to what could pose a danger to you in the future, or get you into lawsuits.
Come Correct when applying for a business loan
Coming correct when applying for a business loan is critical to ensuring you don’t keep getting slammed with rejection emails, left, right, and center. By avoiding the mistakes stated above, you can boost the chances of getting your loan application approved effortlessly.
So, start by weighing the lending options you have, prepare the documentation required by the lender you choose, and ensure you read the loan contract carefully before committing fully.
At Triift Africa, we give collateral-free loans to small business owners, running from #50,000- #1,000,000. Simply fill out our loan application form and submit the required documents.
Our business community also gives you access to a lot of quality conversations around running a business alongside free resources only available to our community members. Join us today.
