Top Small Business Loans Mistakes to Avoid
Small business loans are a handy financial tool for starter entrepreneurs. They serve various purposes and have considerably fewer requirements than other types of loans. Underestimating the bad turnouts of these loans, however, is a risk you should be willing to assume. Just like other loans, they can turn out to be anything but helpful if handled with faulty knowledge or a wrong type of mentality. Mistakes can be made along the way. Fortunately, we know what those mistakes are and how you can be on the safe side.
It’s a lot better, of course, to get small business loans knowing what can happen in the absence of a proper financial behaviour beforehand. In the following, we will emphasise the most common mistakes one can make when taking small business loans.
Go to the Lender Without a Business Plan
This is the most serious misstep you can make. Without a well-thought business plan in your hand, the lender will not take you seriously. Why is that? Because he/she will take it that you have little to no idea what you’ll be doing with the money. There’s no fear that you won’t be paying on time or anything along those lines. You’re simply not trustworthy. It’s like going to the doctor complaining that your heart is throbbing but pointing to your pinkie.
You’re less likely ever to find lenders who are willing to give you money when you don’t have a business plan. It’s a harsh truth that many business owners seem to frown upon for no real reason.
Be Against Collateral
When you are willing to sign off for collateral, the lender will put more trust in you. The collateral is, long story short, a type of security. When the loan you’ll be getting is secured on a certain asset, the lender will know he/she can get his/her money back, should you fail to pay the debt.
A collateral is a very dangerous thing (you risk losing your car, your house, etc.), but it instills more trustworthiness in you. If possible, secure the loan. You should have no fear if you’re 100% sure there will be no problems in you paying the loan back.
Ask for Small Business Loans when you haven’t Checked your Score
It may sound like we are stating the obvious here, but you would be amazed to see how many people actually go to the lender’s office without checking their credit score. You’d be more amazed to see that they are so extremely offended when they’re told “No.”
Please check your credit rating before talking to a lender. If not, not only you will not get the loan you need, but you’ll need to spend a lot of time trying to get your credit score back on track.
Go to the Office without the Required Paperwork
Both you and the lender will be losing valuable time. Customarily, when asking for small business loans, you need to provide: multiple legal documents, your credit report, financial statements (tax returns inclusively) and – venture a guess? – business plan. If you don’t provide these, you’ll have to return a couple of times over to the lender. Ideally, you will have these documents prepared at least one month before talking to him/her. You’ll save yourself from a lot of hassle.
If your credit score is low, try to provide some proof that you’re not to blame for it. Some lenders understand that sometimes, unpredictable things can happen in one’s life. It’s not a certainty, but still.
Go to the Office without having a Clue on your Revenue
Revenue is absolutely crucial because it helps you see clearly how much money your company puts forth and incidentally, how much money you’d need to make things work. Get a loan that you can’t pay back, and your company will go under faster than you can say “debt.”
This is one of the greatest mistakes you can make, and it can honestly transform in a disaster for you as business-owner, as well as for the business itself. Get small business loans only when you know you’ll be able to generate enough revenue to pay them back.
Small business loans can make the difference between success and insolvency. Handle them wrong, and you’ll be suffering the consequences that will be cascading in the aftermath of your mistakes. If you want to learn more about the subject, we recommend you talk to a financial counsellor. They are professionals in the field on whatever topic you lack knowledge in.
They have helped numerous other people stranded in the quite complicated world of finances. We hope this little article here shed some light on the less pleasant things that can happen when you take a loan.