If you wish to expand your business but are running low on capital, this is a dilemma for many small to medium business enterprises. If you do not have adequate finances to carry out the planned expansion, you should not postpone or scrape off the idea.
In present times, it is not very difficult to find yourself a lender who can provide you the finances that you need for your business. Business funding or business loans have become quite a thing in the past few years, especially with a lot of startups cropping up on the scene in recent years. However, this funding is not as straightforward as what is seems to be. Not everyone can apply for a loan and get it approved.
There are certain things that you must consider before applying for business funding. Some mistakes that you must avoid before submitting your loan application are shared below.
Choosing a Lender Randomly
You must not just apply to any lender that you come across while browsing for creditors that can accommodate your specific loan. Do some proper research on the creditors in the market who can provide you the best deal.
That deal may include lower interest rates, flexible payment schedule, acceptance of the application without collateral, etc. You have to find out the lender that best suits your current situation and your needs. Do not go for someone just because they come highly recommended. You have to do your homework first before getting in a vital deal such as funding for your business.
Fluctuating Credit Score/History
Before applying for a business loan, go over your credit history, and analyze your credit score. Most lenders accept a loan application with a specific credit score. You may have the required credit score at the time of the application, but it may not have been the same a few months or a year ago.
If you have a low credit score or unstable credit history, make sure you have with you an explanation for why it is so. The credit score assures the lender of your financial stability and consequently, the possibility of smooth returns of the funds. Therefore, it carries much significance. In case of low or fluctuating credit score, keep yourself an explanation of the reason/s why it is so.
Mismanaged Financial Records
You have to have your financial records updated when applying for funding. The financial statements, credit history, bank statements, balance sheet, everything must be in order before you submit it to the lender. A lender thoroughly scrutinizes your financial records, so make sure they are well managed. If your file is mismanaged or unclear, you decrease the chances of acceptance of your application.
It is best if you have an accountant go over all your personal and business financial records before you go to a lender. An accountant will identify the discrepancies in your documentation, and if it is something that can be fixed, you can do; otherwise, you can prepare for an explanation for it. Going prepared will significantly enhance the chances of acceptance of your application.
Ambiguous Usage of Funds
When applying for business funding, it should not be unclear how you intend to use those funds. If you present a vague explanation of the usage of the funds you are asking, the lender will not be impressed by the lack of clarity. It is a reflection on the seriousness or lack of on your part.
If you do not have a concrete plan on the usage of funds you are asking for, the lender may believe that you will mismanage it instead of being smart about it. Therefore, it is imperative that when you ask for funds, you clearly define how you are going to use those funds in your business. The seasoned creditors do not take ambiguous applications seriously.
Applying Without a Business Plan
Do not make the mistake of asking for business funding without a solid business plan. Your plan must clearly outline the past, present, and future of your business. It gives the lender an idea about your growth prospects, and if the possibilities seem positive, and you have a good credit history, the approval chances of your application become highly promising.
Why you are applying for funding and where do you see yourself as a business in the coming years is extremely important for a creditor. No one is going to lend you a significant amount of capital without a solid business plan, so make sure you have with yourself a carefully drawn realistic business plan. Check out fastcapital360, for concrete ideas on how to draw up a plan for loan applications.
A late application is a great deterrent in the acceptance of your business application. Do not wait until the last moment to apply for funding. Not only does it create a wrong impression in front of the creditors, but also there are chances that a haphazard application will not do you much favor. The loan application must be carefully and meticulously, prepared until the last hour.
Having no collateral on your application will cause many a lender to be reluctant in accepting your business funding application. A guarantee is a surety that no matter what, the capital that a lender is entrusting to you will be returned, a backup plan in case of loan default. Even if you are sure you can pay back the loan, consider adding collateral, it will speed up the acceptance of your application.
When applying for a business loan, these are not the only pitfalls that you should avoid. However, these are some of the common mistakes to be avoided. Never forget to do your research before applying for business funding. It will hardly cost you anything and will gain you a better insight and higher chances of getting a better deal.