Applying for A Loan? Avoid Making These Common Mistakes Today!
Be it personal loans, Small Business Associations (SBA) loans, long-term loans, or any type of loan. Being an owner, you already know how intimidating applying for a loan could be. Go through a rigorous process with unknown people who are auditing your business financials history. Only you know how discomfiting the whole situation is. Still, there is a big chance that you might get offered unfair terms or even a rejected loan
But like it is said, “Where there is a will there is a way” all you need is adequate financial knowledge and little confidence. Trust us, there is nothing like these two things cannot fix!
Considering all that, in this blog, we will discuss the most common mistakes business owners should stop making when applying for a loan. What you can do to avoid making such mistakes ending with a conclusion.
Mistakes To Avoid When Applying For A Loan
1. Not Improving your credit score-
Besides your loan objective, it is essential that you also check your eligibility level i.e. checking your credit score.
Especially the business owners with credit scores lower than 600 are recommended to work on improving their credit scores. You need to understand when your credit score is low, there’s a risk of getting your loan denied.
When you improve your credit score, you can better determine the loan option for them and get sufficient time to prepare for it before applying.
2. Accepting Irresponsible terms and conditions of any loan-
You know you can avoid paying higher interest payments only when you carefully read all terms and conditions of any loan.
Not always but sometimes, even after having strict guidelines to follow many loan lenders irresponsibly implement different repayment terms. This made them freely request amounts of money upfronting higher rates of interest.
Although, such irresponsible payment implementation is wholly connected though the loan industry. Yet, there is always a chance that you encounter questionable terms and conditions of any loan while heading to traditional loans. Thus every time applying for a loan, make sure to thoroughly go through the terms and conditions of any loan you are taking.
3. Not Considering Payment Deadlines-
Missing payment deadlines is common for first-time business loaners at an initial stage. Surprisingly, in most cases having no cash on hand is not the reason for this!
In most cases, it is a forgetting deadline issue i.e. sometimes loan payers forget the date of their loan payments. Although, the condition of not having cash in hand could be a reason that exists. Besides, some businesses do everything to make payments on time.
The only way to successfully have a loan and pay loan installments is working by following an ideal planner. An organized approach will ensure making you aware of the deadline whenever it is near. So, you will always be ready to have cash in hand to cover all your loan payments.
4. Paying Off Loans To Early-
When your credit score is low, paying off debt in advance is undeniably a great way to improve your credit score. But paying your loan off too quickly has its downside too. It could sound shocking, but many loan lenders charge a fine even for paying your loan early. That is because they do not want to miss their interests.
So, make sure every time you apply for a loan, keep it paid on the fixed date or you can even prefer to pay it after your pay date.
5. Not Knowing Your Exact Business Plan-
You know before, selecting any subject at high school or getting into university. You go through everything and analyze what you want in your life, what career you would like to opt for, and so on.
The same goes for the loans too. When you apply for a loan, make sure to do your research. Understand the purpose of taking a loan, How much money do you need for the specific project? Do you want the full amount on the loan? and how much finance would you like to secure? How long will it take to complete the loan application process? And so on.
Understanding such details help you specify the specific payment plan and the loan type you need. And the best part is you can even use it as a negotiating point for your loan lender.
Did you know?
As reported by the small business associations, in the past year almost around 2 to 3 percent of loan borrowers failed to pay back their loans. Even though the percentage seems quite low yet the remaining ratio of money borrowers i.e. around 28 to 29 percent who make the full payment. Do not earn the maximum possible return over their loan.
It is because of multiple reasons like- paying post or prepayment penalties, making un-successful fee payments, making unnecessary expense payments, and so on. Thus, to ensure getting maximum profit out from the loan. Business owners needed to update with every small and big change made under government norms. Or by taking help from guiders or loan advisors who are there to show the pathway to successful loans.
Things You Can Consider To Avoid Making Above Mistakes
- Terms & Conditions–
Always check the terms and conditions of any loan you are getting. As the terms and conditions showcase the taken loan details, it becomes essential to understand what is being expected. Most importantly, you will be protected from any unexpected rise in your loan fees made by loan lenders.
- Use Reminding Software To Make Payments on Time-
No one likes to pay more loan interest until they forget to pay it or they do not have enough finances to pay such a loan at the movement.
So in case, this is your reason, you can switch your things to making an accurate assessment using the software. Software such as Quickbooks and even Google calendar could do wonders to remind you of the due loan payments.
- Take Time and Do Research on The Market-
Counting on just local banks without researching the market is the most common mistake generally loan seekers make.
For every business, there’s always a loan provider who crafted its policies and rules according to specified loan needs. Like – for small business owners, there is Small Business Administration (SBA) which considers loan payments according to small businesses.
Besides, Credit unions and other financial institutions are some other sources that are worth investing your time and research.
- Timely Check Your Credit Score-
Checking your credit score regularly will keep you updated and understand what’s your current credit position. So, every time you apply for loan applications, you are already aware of what lenders see. And complete if there is any incomplete or inaccurate information left.
Now let’s take a look at the loan application process especially when you are applying for the first time-
How To Apply For A Loan
As you already know the common mistakes and the way to overcome them, this is the perfect time to discuss the loan application process.
We all know selecting lenders that can probably approve you when applying for a loan is not easy. You need to do a lot of research to find the right fit loan provider.
Having patience without rushing the process and understanding available options could lead you to the position where your loan could get approved. So, here are the things you should consider while applying for a loan.
- Understand what type of loan you need. Is it an SBA loan, small business loan, or any asset financing?
- Make sure to check your credit score whether it is a personal credit score or a business credit score.
- Research financial institutions and loan lenders, and compare all of them based on the above criteria.
- Prepare and gather all the required documents mentioned below and you are all set to apply for a loan.
Now let’s understand what things you need while applying for a loan-
Things Need While Applying For A Loan
If you look at the loan application process deeply you may find everything revolves around your documents. Thus, if you apply for financing of the small business loans or any other loan. Then you must go through the requirements of money lenders. You need –
- Gather appropriate documents required for the loan process
- Your loan program
- Reports of accounts receivable and payable
- Your business financial credit report for the past three years (including- cash flow, Balance sheet, Income Statement, etc.)
- submission of last three years’ tax returns (personal and business)
- Your financial credit report
- Legal documents (depending on the loan’s requirement) eg. Copies of contracts, Business registrations and licenses, and so on.
Above, we have defined some basic information of generally requested documents required by most loan lenders. Such requirements could be extended with additional documents depending on the type of loan. Depending on the type of loan and the lender the process would take anywhere between months, weeks, or days for the loan approval.
The Best Way To Apply For A Loan
Mistakes are a part of life and we all make mistakes at some point, but making mistakes in the case of money is not an act of maturity. Thus, by simply following the points mentioned above you can easily avoid such common mistakes. We hope our blog will help you in building up confidence, so you can make a successful loan application that could fit your financial situation and need.
In case you still got stuck with any part of the loan process you can call out for help. Our expert financial advisors will be right there to help you out from any hurdle you have been dealing with and make your process 100% smooth.