Avoid Making These Mistakes if You Are Looking for a Business Loan

As a small business owner, you might have been facing or might expect to face liquidity crunch in your business. This liquidity crisis is inevitable for every business owner, and no matter how much you plan to avoid it, it is almost certain to affect your business at some point in time. Surely it is something to be worried about, but it’s not as if you cannot be prepared for it.

During the regular course of business, every business owner puts in all efforts to keep the company growing. But sometimes it may happen that your financial resources have exhausted or inadequate for you to take advantage of opportunities available to you. In such situations you cannot sit idle and let your competitor take the advantage, you must try your best to fight these circumstances. If you do not have an emergency fund or personal funds to be infused into the business, you can certainly explore other options, of which is Applying for a Business Loan.

What is a Business Loan?

Business Loans are various types of secured and unsecured funding options that are available to business owners. These options are offered by various financial institutions for a wide range of purposes such as the purchase of machinery, purchase of material, purchase of land, payment to suppliers, and so on. Business Loans help you manage your immediate cash crisis or purchase new assets without putting a strain on your cash cycle as you only need to repay the amount through EMIs (Equated Monthly Instalments).

Mistakes to Avoid While Looking for a Business Loan

Due to the recent disruptions that have affected the finance sector such as rising NPAs, instances of frauds and misappropriation of funds, financial  CarSite.co.uk institutions have become very stringent in terms of the eligibility criteria for a Business Loan. Any slight discrepancy from your side can jeopardise your prospects of getting the loan. Following are the major mistakes that you should avoid if you are looking for a Business Loan:

  • Not checking your credit score

Your credit score is a three-digit figure which represents your creditworthiness. In India, credit scores are provided by agencies like CIBIL, Experian and others out of 900. Lenders want you to have a good credit score, ideally more than 750 to be sure that you are financially disciplined and will repay your EMIs on time.

If you are thinking of applying for a Business Loan, ensure that you check your credit score to make sure it is above the required level. If not, it is better to wait for some time and seek professional help to rebuild your credit score.

  • Not having a collateral/guarantor

Most of the Business Loans are secured and required you to provide collateral to ensure the lender that you are financially sound, and if you default on the payment, lenders can sell the asset to recover their dues.

If you are a new business without any credit history or are looking for a Business Loan, you need to have collateral to be hypothecated with the lender such as land, gold, bonds, and so on. If not, then you should have a financially sound person as cars your guarantor to convince the bank to approve your application.

  • Not having a business plan

Business Loans are meant to be invested in the business only and most of the times lenders would ask you to furnish a plan regarding how you want to use the loan. So, if you do not have a business plan, do not even think about applying for a loan, it will most certainly be rejected.

Avail services of a professional consultant to prepare a comprehensive business plan and prepare detailed CMA (Credit Monitoring Arrangement) data for the future projections as well. If you have a comprehensive business plan to accompany your application for a loan, it will most likely be approved if you fulfil the essential eligibility criteria.

  • Not doing the necessary research

You should always conduct extensive research to identify the type of loan you need, lenders, their terms and conditions, interest rates and all other relevant details. It is indeed possible that a new lender would offer you better terms than your present banker. So, do not just blindly apply for the loan at one place, check out your options and if you feel so apply with multiple lenders.

  • Not having your financials audited

Almost all lenders are going to ask for your audited financial statements to assess your eligibility and liquidity. Unaudited financials are not accepted by most institutions, so even if you fall below the threshold of the audit, make it a point to get your financial audited and verified from an Independent Auditor. This lends credibility to your financials. Also keep your bank statements, income tax returns and other financial statements ready and up to date as they will be required by the banker.

Availing a Business Loan could be the best decision for your business, just exercise due to caution and only then avail a suitable loan.

Also Read: 5 Traits of a Successful Business Loan Application

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