Taking out a low-cost loan to fund your small business is a smart decision to fuel growth and save money. However, the lending process can be daunting. Here are mistakes to avoid so that your loan application goes as smooth as possible.
It’s no secret that qualifying for a loan requires submitting paperwork. For example, if you’re working with SmartBiz, we collect bank balances, a current income statement, current balance sheet, past net income and outstanding loan information among other financial data. Could you put your hands on all of those documents quickly? If not, you should take some time to put your financial papers in order before you apply for a loan. If you’re having trouble getting started, consider hiring a freelancer to set up and implement an office paperwork filing system.
Credit Card Abuse
Having a good credit score is important to most lenders. If you’ve maxed out your cards and are having trouble making payments, it can impact your credit score. The best thing you can do to build a great credit profile is to make timely payments on all of your credit card accounts.
Ignoring Lender Requests
When you’re working with a lender, you’ll need to submit a host of documents before you can get approved and funded. You might be asked to dig out paperwork that is not readily accessible. It’s tempting to procrastinate a task like this but resist the urge! Being proactive and swiftly providing information will speed up the approval process.
Not Monitoring Your Business Credit Profile
You should regularly monitor your profiles at all of the major business credit-reporting agencies (Dun & Bradstreet, Equifax, and Experian) to make sure that there are not any mistakes. A simple error can make it easier for you to get SBA loan denied.
Ignoring the Fine Print
Be sure you look over all of the loan fine print before you sign on the dotted line. According to the SBA, things to look out for include:
- Whether the interest rate is fixed or variable (and when it will change)
- Payment schedules, grace periods and late payment fees
- Prepayment penalties if you pay off the loan early
- The lender’s definitions of default and the penalties incurred
Make a note of any questions you have and bring them up with your lender before accepting the terms.
Having No Plan for the Proceeds
Your lender will ask you what you plan to do with the loan proceeds and you need to have a clear answer. Proceeds can be used for a variety of reasons and some lenders have restrictions. This is a good time to research before you apply to make sure the funds can be used the way you need to grow your business.
Failing to Shop Around
For the busy small business owner, time is money. You might be tempted to look at a few lenders and pick one quickly. However, this is when you really need to slow down and do your due diligence. Compare rates and terms and don’t forget the fine print when you research.