Whether you’re running a new small business or a well-established large-scale company, a regular influx of capital is necessary to keep a business operating smoothly. In order to grow your business by upgrading your equipment, expanding to multiple locations, and allocating more manpower, you would need working capital.
Sourcing funds for a business can be quite stressful. Not all businesses can avail funds from venture capitalists and investors. In these cases, getting a business loan may be the best option you have.
What is a Business Loan?
A business loan is an amount you can borrow from a lender like a bank or a Non-Banking Financial Company in order to boost your business and influx it with capital. A business loan can be taken for many reasons, like expanding your business, increasing recruitment, paying employee salaries, purchasing new equipment, and performing day-to-day business operations.
But it is common knowledge that getting a business loan is not very easy. You must fulfil many criteria, and lenders prefer giving business loans to established businesses showing years of profit.
In order to secure a business loan, you must ensure your application is iron-clad and supported with the necessary documents. You must avoid making mistakes when applying for a business loan because it can eventually lead to loan rejection.
Let’s look at some common mistakes to avoid when applying for business loan.
No Solid Business Plan
A business plan is a document that contains all the information regarding your business. The nature of your business, the ownership structure, management, financials, business growth targets, and many such details are included in a business plan.
A business plan should effectively feature all details of how you plan to use the business loan, execute it, generate profits, and repay it within the set tenure. Business loan lenders don't just give out business loans. They need to see a concrete business plan containing exhaustive details of how you plan to use the loan and pay it back.
If your business plan ticks all these boxes, then your chances of getting a business loan increase significantly.
Submitting Inaccurate Financial Details
Securing a business loan is tricky when your business is not showing consistent profits or isn't well established. This may lead to some businesses misrepresenting their actual financial details when applying for a business loan.
This is a strict no-no and can land you in trouble. The documents required for business loan include all your finance-related documents like balance sheets and profit and loss statements. These give an accurate picture of your business to the lender, and you must never inflate your figures in order to get a business loan. If you already have multiple business loans, then do not hide them and be transparent.
Be truthful in your applications and fill out only accurate financial details. Map out why you need the business loan and prepare for the best result.
Lack of Proper Documents
As we have mentioned so many times already, business loan eligibility is reliant on having all your business documents in order. Many businesses make the mistake of not completely understanding the eligibility criteria and document requirements.
Submitting incomplete documents can lead to loan rejection or constant back and forth between you and the lender for additional documents and proofs. For a hassle-free business loan experience, first, find out the exact documents you need. Take your time collecting those documents, and once you’re ready, you can apply for the business loan.