Avoiding Common Mistakes When Applying for Start-Up Business Loans
Applying for start-up Business Loans is a straightforward process. You can do so by fulfilling the lender’s eligibility criteria, providing the necessary documents, and filling out an online application form. Modern loan companies have taken their loan processing online, considering the urgent requirements of business owners. Despite the simple application process, easy eligibility conditions, and minimal documentation requirements, many Business Loan applications get rejected due to common mistakes that most applicants make.
Let’s look at a few mistakes you must avoid when applying for a start-up loan.
Lack of a Solid Business Plan
When you apply for a Business Loan, the lenders want to know your vision through a business plan. It is a necessary document demonstrating how you intend to expand your business over the next few years, market analysis, revenue projections, profit estimates, business tactics, etc. A solid business plan gives the impression that you are confident, sincere, and have the potential to grow your business. Although a documented plan is not mandatory, lenders prefer such borrowers.
Not Calculating the Credit Score
Before applying for a Business Loan, you must be aware of your credit history, both individual and business. If the credit score is low, comprehend their reasons and take appropriate action to improve it. A decent credit score will convince the lender that you will utilise the loan for the intended purpose and repay it on time. A credit score demonstrates your financial discipline and assesses your ability to repay the loan promptly.
Inadequate Documentation
The Business Loan application procedure can be full of rush due to paperwork when you have several other things to do. Pay close attention to the lender’s documentation requirements and prepare them properly before applying. The lender may delay the funding process or reject your loan application unless you provide the required documents supporting your application.
Financial Misrepresentation
Whether the business is going in loss or profit, you should always disclose the actual financial situation to the loan company. Any firm might face financially tough times, and that is when they need a loan for financial support. For instance, a hotel owner may apply for a hotel Business Loan during off seasons to sustain operations. Outline the reasons for low profits or losses during a period and demonstrate how you plan to bounce back with the loan. Lenders will reject the application straight away if they find false financial information in your application.
Selecting the Wrong Loan Scheme
You might find several loan schemes to choose from, including start-up Business Loans, working capital loans, secured loans, unsecured loans, Business Loans for women, etc. Before applying for a loan, consider the available options and choose according to your requirements. Research and analysis will help you decide which loan plan is the most suitable for your goals and which lender provides the best loan scheme. Give attention to their eligibility conditions, repayment terms, interest rates, additional charges, and other terms and conditions.
Applying for Multiple Loans at a Time
Many loan seekers apply for multiple loans at a time, hoping to get approval from at least a couple of them. Although it might sound sensible to first-time loan applicants, it is the worst strategy that diminishes your approval chances. Filing multiple applications will reduce your credit score due to several hard enquiries on your credit report. Moreover, loan companies perceive this as a credit-hungry behaviour, making a Business Loan more challenging to achieve.
Over-Borrowing
Depending on your eligibility, you may qualify for a larger loan amount than what you actually require. However, don’t feel enticed to over-borrow than your initial requirement. Resisting this urge is important as over-borrowing will create an unnecessary debt burden, making repayment more challenging. A higher loan amount will increase your monthly EMI size or lengthen your repayment tenure, both conditions you would want to avoid. Therefore, when applying for a Business Loan, stick to your original plan and borrow only what you need.
Ignoring the Terms and Conditions
Never undervalue the significance of carefully reading the loan documents before finalising them. Read and understand each term and condition properly before signing the loan agreement. Ignoring them may cause complications, leading to unpleasant surprises later. In case of any doubt or clarification, contact the lender’s executive or customer care centre before finalising the deal.
Not Making a Repayment Plan
When applying for a loan, the repayment plan is one of the most crucial things to consider. Use a Business Loan EMI calculator to calculate EMIs for various loan terms and choose one that best suits your repayment capacity. Reduce your current obligations to adjust the instalments conveniently in your budget. Activate the e-mandate to automatically pay the EMIs from your bank account, reducing the chances of missed EMIs due to negligence.
Start up Business Loans can help expand your firm with the much-needed financial support. However, avoid making these mistakes and plan enough before applying to achieve the intended goals. Borrow the right loan plan, spend wisely, and repay on time to ensure smooth operations in your business.
About Author
