Here are some small business loan mistakes that can cost you money in 2022

Sufficient investment capital is the most important prerequisite for successfully starting and establishing a business. The cost of starting a small business can easily run into six figures, and that is the total amount you will spend before you even open your doors. Lenders have certain requirements, such as the age of the applicant, business experience, annual turnover, etc., that must be met for a small business loan.

It can be difficult for most business owners to know where to start when there are so many options for small business loans. The risks associated with lending are also numerous. It can be expensive to choose the incorrect lender, the incorrect loan, or even the incorrect use of your funding. Here is a list of mistakes to avoid to increase your chances of getting your small business loan application approved if you’re concerned about it being denied.

Common Mistakes to Avoid When Applying for a Small Business Loan

1. Not having a sound business planAny lender will want to know the business owner’s vision when they apply for a small business loan. Small businesses frequently lack a formal business plan or even any kind of plan at all, but you must still invest the time and effort to create one before visiting a lender’s office. An outline of your business, market, products, and finances can be found in most business plans. Consider getting the opinion of a business plan expert who can review it and provide feedback if you’re unsure that your plan will persuade the lender. Also, be prepared to describe how you intend to use the money you wish to borrow. Loan applicants must at the very least be able to justify their need for a loan and their repayment strategy. 
2. Not having a good credit historyOne of the resources lenders employ to assess a borrower’s reliability is a credit report. You might not be approved for a loan if your credit report indicates that you have not been diligent in the past about repaying debts. If your credit score is below 700, it can be challenging to get approved for a small business loan. To start, make sure the credit scores for both your personal and business accounts are accurate. Before submitting your loan application, fix any mistakes you find. Due to the higher perceived risk, lenders may decline an applicant with a low credit score. Therefore, maintaining a high credit score through responsible financial behaviour always pays off. 
3. Numerous loan applicationsApplying for another loan makes no sense if one already has some loans in progress. Too many loans open at once can stifle cash flows and raise an alarm for lenders. Lenders may also interpret it as evidence that a person is unable to control business expenses with available cash flow. So, limit your borrowing and only borrow when necessary. 
4. Lack of supporting evidenceA business loan application typically calls for the submission of KYC, address, income, and establishment-related documents. The best course of action is to have all of these documents on hand so that there is no need to waste time looking for them at the last minute.The lender might think that the applicant is hiding something or isn’t fully complying with the requirements if they receive insufficient documentation. It might result in a holdup in the loan’s processing or outright rejection. 
5. Not doing any researchIt’s a mistake to pursue one loan provider blindly without looking at your other options. Spend some time investigating a range of conventional and non-traditional lenders to determine which one is the best fit for your company.Some businesses that apply for loans from affiliated financial institutions will also receive federal support from the SBA (Small Business Administration). This could be a good option to consider for small business loans. 
6. Failing to read the fine printWhile lenders prominently highlight the key benefits of a loan, many other details are disclosed in the small print. Before applying for a loan, you should take the time to read the fine print and comprehend all the costs, fees, foreclosure restrictions, and even late payment penalties. This will ensure that there are no unforeseen fees down the road. 

SBA Loans

Small business owners prefer SBA loans because of their low rates and lengthy terms. A federal government organisation called the Small Business Administration (SBA) provides capital, contracting, and counselling to small businesses. The SBA’s loan program, which provides small businesses with guaranteed financing through participating lenders, is one of the main ways it accomplishes this.

Direct SBA loans to small businesses are not available. Instead, it sets guidelines for loans made by its partners. These include financial institutions such as banks and credit unions, as well as non-profit organisations that support community development and small business lending.

• Compared to conventional loans, SBA loans usually have lower interest rates and longer terms.
• An SBA loan is easier for a small business to obtain than a conventional loan, but you must submit extensive financial documentation as part of the application process.
• The type of SBA loan you apply for determines how much you can borrow.

You need to have a thorough understanding of all your funding options as a new small business owner. When all other options have been exhausted, it might be time to look into SBA loans.

Bottomline

No matter what kind of small business loan you require or how much cash you must borrow, be certain that you are completely familiar with the financial situation of your business. A well-considered and wisely applied loan can catapult your company into a growth trajectory.

You cannot make thoughtful lending decisions unless you have a complete understanding of your small business’s financial situation. Your financial journey will go smoothly if you borrow responsibly, spend sensibly, and repay on time.

Visit the Piramal Finance website or click here to read more thought-provoking articles or if you need assistance with loans of any kind.