Top 25 Small Business Loan Application Mistakes From the Professionals

3. Not Being Consistent With Your Info

Gerri Detweiler, Education Director, NAV

Not being consistent with the details that you declare when picking out a small business loan application can lead to a delay in the procedure, or worse, a denial. Details such as the date you began your business, your company place, and financials are very important to lenders. This information can also help them locate your company credit history from commercial credit reporting agencies.

4. Not Assessing Your Credit Before Using

Chris Capecelatro, Head of US Underwriting, Funding Circle

Most business lenders will review your personal credit history as part of the application procedure. Those with high scores (over 700) have a better prospect of being approved for a more attractive interest rate. Before you apply, ask a copy of your personal credit report, check for errors, and get the credit agency to resolve any matter. If your score is 600 or lower, consider taking steps to improve it before you approach lenders.

5. Turning in Erroneous and Do-it-Yourself Tax Returns

Bryan Doxford, Chief Lending Officer, Excelsior Growth Fund

Do not require online software to prepare your own taxes, especially if you’re applying for a small business loan or seeking financing from investors that are serious. It’s best to work with a professional CPA with knowledge regarding what lenders want to see. It’s absolutely critical that you reflect a trusted and accurate image of their organization’s financial position via your tax returns once working with lenders, and many business owners make serious errors when taking a DIY approach.

6. Dealing With Agents Rather than Immediate Lenders

Matthew Meehan, CEO, Shield Advisory Group

Business owners need to know about who they’re dealing with, whether it’s with a broker or a direct lender. When you deal with a broker posing as a direct lender, they can send out your application to multiple lenders, hoping to secure an approval for you. You may end up with multiple inquiries from direct creditors on your credit report, which will negatively impact your credit rating.

8. Lack of a Strong Business Strategy

Brian Cairns, Founder, ProStrategix Consulting

Many tiny businesses believe they can gain credit without or with just a skeleton of a company program. However, having a strong business plan increases a company’s opportunity to be approved for a loan, to secure funding, and to grow. It is best to compose a solid and thorough business plan prior to applying for financing.

To learn more, read our article on the best way best to write a business plan.

9. Failure to Develop a Fantastic Relationship With Your Bankers

Tom Coletta, Senior Vice President & Commercial Market Executive, Axiom Bank

1 common mistake that a small business owner does when applying for a business loan isn’t spending some time to get to understand his or her banker. If you don’t have a fantastic relationship with your banker, then it may be harder for you to convince them that you’ll be a fantastic borrower. Always be transparent to your own bankers and inform them your narrative as a customer and company owner.

10. Not Reviewing Your Financial Statements

Lonnie McQuirter, Partner, 36 Lyn Refuel Station

Not understanding your company’s financials when you apply for a loan may be a deal-breaker. You need to regularly review your financial statements so you’re aware if your earnings are growing or decreasing in recent months or even years, or if it reveals you can still service the additional debt and be able to pay back it comfortably. This helps build confidence when it is time to face the lenders.

11. Misrepresentation of Time in Business

Cory Damm, Vice President, LeaseQ

1 common error when searching for a business loan would be misrepresenting the information on’period in company’. Some prospective borrowers often equate their own years of experience working for someone else within an industry as’period in company’. Nonetheless, what lenders are actually asking for is how long has the borrowing entity been formed or incorporated.

12. Not Knowing The Different Funding Alternatives Available

Jeffrey Bumbales, Director of Marketing, Credibly

Some business owners do not take the opportunity to know and comprehend the various financing alternatives available to them. You have to know that not all funding options are created equal and a fundamental comprehension of the different products, prices, and terms can allow you to identify the ideal capital solution for your company.

13. Not Understanding How Much You Need to Borrow

Meredith Wood, VP of Content, Fundera

Small business owners frequently observe the requested loan number section of the small company loan application form and throw in lofty numbers to find out what they can get. The problem with this strategy is that business owners often request more money than they make in revenue, which communicates to the creditor that their expectations are simply too high. This means the business wouldn’t be able to support the loan being asked and the lender may deny.

14. Applying for Financing Without Proof of Stability

Manuel Solis, Managing Director, The Alternative Board — St. Petersburg

It is easier to get denied for a loan if your business does not have proof of equilibrium. If your company has been established for at least three decades and has a registered, steady stream of income, you should not have a problem getting approved by a financial institution for a loan. Additionally, the credit rating of the vast majority stakeholder of the business is usually checked and believed.

15. Not Reading and Understanding Terms & Conditions Before Assessing

Joel Klein, Founder & CEO, IMBC Marketing

Often, the borrower does not thoroughly read and comprehend the loan’s terms and conditions prior to signing the contract. Some lenders may control you to sign loans which could wind up getting you in more financial trouble in the future. It’s always a smart idea to take time to read and understand everything you are getting into. Spend enough time to make as many queries as possible about the loan you’re applying for.

16. Struggling to Research the Lender’s Criteria

Sohei Tanahashi, Sales Manager, Founders Guide

Different lenders have different qualification requirements and criteria that debtors must fulfill. It is important that you know and understand each specific lender’s qualifying criteria and the way in which they measure business health. Attempting to do your homework with this crucial information can lead you to come unprepared when you meet with the lender to earn your loan demonstration.

17. Not Pledging Collateral

Caitlyn Rose, Small Business Advisor & Finance Editor, LendGenius

Applying for a loan if you don’t possess an asset to be utilized as collateral can make it hard for you to obtain qualified. Collateral is a company or private advantage used as a collateral for a loan. Some lenders will require that you provide some form of collateral. Pledging collateral mitigates the risk assumed by the lender, increasing your chance of being approved for financing.

To find out more, read our article on the best way best to get an unsecured small business loan to your startup.

18. Applying for a New Loan When You Have Existing Debts

Katie Alteri, Staff Writer, Fora Financial

If you apply for a business loan while you still have existing debt, it will affect your ability to pay back the loan, in addition to your additional accounts. This may lead to you to acquire more money than you previously had. Also, in the event that you currently have a loan balance, applying for another loan is considered”stacking.” This can be very financially irresponsible and will set your business at risk. Additionally, this may be unjust to the creditors that you are working with because it is extremely improbable that you’ll have the ability to cover them all back in a timely way.

19. No Money for a Downpayment

Rohit Arora, Guest Writer, Inc.com

According to Inc.com, lenders want to see borrowers have”skin in the game”. You, as a company owner, ought to be inclined to put up money of your own for your company. Most business loans need at least 15% to 20% down payment. You should be able to put this up amount if you would like to qualify for financing.

20. Not Locking at a Rate

AllBusiness Editors, Financing & Credit, AllBusiness

Interest rates vary. If you think you’ve found a good rate, AllBusiness.com recommends locking it in until it moves up. Too often, people make the error waiting for interest rates to fall. However, there’s no guarantee that interest rates will go lower if you wait patiently. So it is far better to take the deal when you think that it’s reasonable and fair.

21. Hurrying that the Bank to Make a Decision

David Guest, Business Coach, DavidGuest.com.au

The loan application and approval process varies from one lender to another, but it generally involves many distinct men and women. If you push the lender to operate through their loan acceptance process faster, it could be interpreted that something isn’t quite right. In accordance with DavidGuest.com, hurrying the lender can make them postpone further while they assess deeper into your business and the potential dangers you present to them.

22. Failing to Negotiate

Kaylee Riley, Contributing Writer, Patriot Software

Contrary to what most borrowers believe, the terms of business loans aren’t necessarily set in stone. Most borrowers don’t understand that it is possible to negotiate much better terms which will benefit their organization. This is particularly applicable if you get your loan through a bank in which you’ve got an present banking relationship. Patriot Software indicates you try to pay attention to the interest rate or eliminate certain fees.

23. Failure to Define The Purpose of the Loan

Dan Radak, Contributing Writer, Small Business Marketing Tools

As a borrower, you ought to know why you need financing and should be able to clearly explain to the lenders your objective. If you are not able to define what you want the loan for, you’ll have trouble convincing the lender that you are worth the risk. Small Business Marketing Tools implies that you understand your purpose first before you speak with your lender.

24. Making Important Changes

Lenders typically do not wish to see major changes in the manner in which you run your company in the middle of your loan application. Lenders want to see stability in your business, so sudden changes will throw up a great deal of red flags. This may result in a denial of your loan program.

25. Having Too Low Debt Service Coverage Ratio

Debt service coverage ratio (DSCR) measures your ability to repay debt by dividing your net operating income by your total debt and interest obligations. Lenders have different criteria for assessing DSCR, but you a DSCR of 1.25 or above is best. Possessing a minimal DSCR shows that your company’s finances might not be enough to service your debts, and it lowers your chance of getting approved for a loan.