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When a business needs a loan, a number of options exist to grant that wish. Several institutions, alternative lenders, and government agencies exist to grant loans to businesses, yet only a few businesses get loans that they apply for.
On the other hand, some eventually get the loans but default on the repayment of the loans, this had led to many asking the key question, ‘where did it go wrong?’
Mistakes are part of human nature, and since business is being run by humans, they are bound to happen. Sadly, these mistakes are counterproductive to their ambitions when it comes to loan applications and repayment.
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Below are 5 common loan mistakes business owners make:
1. Absence of a comprehensive plan: Businesses in most cases would blame the lack of funds when an enterprise takes a wrong turn, and so would look for means to improve findings which taking a loan is quite an attractive prospect.
In some cases this approach works, in most, it doesn’t. Running a business is more than just the amount of money poured into it.
As a business owner, you would need a comprehensive business plan not only to keep your business going but to convince any potential lender–banks and traditional lenders–to part with a sizeable sum of money as a loan to you. Also, it would be unwise not to have a plan on how to effectively manage the loan when received.
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2. Inflating income flow rates and reducing expenses: it might seem a cool idea to inflate the income rates of your business while reducing the expenses incurred, but trust me when I say, that would only be a dumb decision.
Banks and lenders have great knowledge of the market and understand it at each point in time, so falsifying such important aspects of your business would only put you across as dishonest and unreliable in the long run.
3. Not comparing loans before choosing one: It is often advised that one should opt for the lowest loan repayment sum possible, but often people jump on what they feel is the best rate without comparing such rates with others.
Some would claim their gut feeling accepted the deal, but gut feelings don’t repay loans. Comparing loan deals helps businesses arrive at the best one.
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4. Incomplete paperwork: Banks and lenders would need a lot of paperwork to ensure that there are no loopholes in the loan system. The paperwork is also needed to ensure that the prospective loanee is within the range of paying back.
However, most businesses in a haste to complete the loan process, muddle or completely fail to include some of the paperwork.
5. Not paying attention to the fine print: Banks and Lenders charge a number of fees that most prospective business loanees are unaware of. Before signing, ensure that you understand the annual percentage rate(APR) and interest rate. Also, ask what type of fee a lender charges before signing a loan deal.
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Getting a loan might seem a herculean task but is rather simple if common errors are avoided. The next time you apply for a loan, take a few steps back and avoid mistakes that could ruin your application.
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