Looking for a Business Loan? Avoid These 4 Common Pitfalls

Planning to launch your own business? Emerging entrepreneurs and current small business owners come across numerous issues whenever applying for business loans related to credit rating, loan terms, collateral security, and above all, business plan. The key to getting the right business loan at a competitive interest rate is by doing proper research and detailed comparison.

Given below are the four common pitfalls to avoid when applying for a business loan

1. Ignoring Your Credit Scores

Business loans are approved on the basis of credit scores and credit ratings. Reputed credit bureaus such as Experian, TransUnion and Equifax offer comprehensive reports reflecting a complete picture of your past credit history.

Things to do:

  • Review your credit score and reports regularly every 6 months
  • Subscribe to a credit monitoring and alert service
  • Obtain a 3-Bureau Credit Report annual subscription

2. Signing Business Loan Agreement without Reading

In the process of getting a business loan approved quickly, people are known to sign a business loan agreement without reading it properly or completely.

Things to do:

  • Read all the business loan agreements carefully
  • Discuss about terms and phrases that are contradictory
  • Ensure clarity about certain clauses with which you are not comfortable

3. Waiting Too Long for Interest Rates to Come Down

Obtaining the best interest rate for the business loan is important. However, sometimes you have to determine if it is best to lock in the interest rate now or wait for lower interest rate depends on the current global economic conditions, your credit score and timing for the additional working capital required.

Things to do:

  • Choose and compare business loans with least interest rates
  • Determine the best interest rate for your business loan
  • Lock the interest rate before it moves up further

4. Failing to Explain Your Business Plan

Explain your exact business plan in detail to the business loaners and lenders regarding the business concept, execution of plans and generation of profits. The manner in which you present your business plan will be important to the loan approval decision.

Things to do:

  • Provide detail about your goals and execution plan
  • Explain your business plan in detail to generate revenue
  • Include reports and financials supporting your business plan