Everyone knows how uncertain economic times can make it difficult to obtain a loan from a bank. Uncertainty causes banks to be very selective when deciding which applicants to loan money to. There is plenty of information out there that can help inform loan applicants on how to make themselves and their businesses look appealing to banks, but one way to increase the chances of getting that loan is to know what not to do. In an article for Entrepreneur.com, Catherine Clifford discusses 4 mistakes to avoid when applying for a bank loan.
Mistake #1: Underestimating the value of personal credit
Banks want to lend money to applicants who have been responsible managing their own personal finances. If an applicant can’t manage the money that directly affects themselves and their families, then what makes a bank think they will do any better with its money?
Mistake #2: Applying for the wrong type of loan
Small business owners often use credit outside of its intended purpose. For example, if you buy a piece of machinery with a loan that was intended to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under.
Mistake #3: Expecting a loan without collateral or a plan to pay it back
Banks are in the business of making money, just like entrepreneurs and their respective small businesses. A banker won’t approve a loan that he doesn’t think has a chance of getting paid back. Be sure to state how critical the loan is for your business and include information on how you plan to pay the money back when applying for a loan.
Mistake #4: Waiting too long to approach a banker
Small business banking is about relationships. If possible, try to get to know your banker. Not only will you develop that face-to-face relationship, but you will also have the opportunity go get your business financials organized and in shape with a banker’s eye in mind. These are all great tips to consider when thinking about and eventually applying for a loan for your small business. If you’re ready to apply for a business loan now, click here to contact us. To learn more information on small business loans and to find the one right for your business, visit the loan products page.