In the fast-advancing world of today, businesses are getting more and more competitive. Very few individuals manage to arrange full funds for a business but still, they need to get loans at some turn. Not just for starting the business, loans are essential for expanding an existing company. Often businesses find themselves in need of loans to fund new purchases, hire employees, rent spaces, and many other expenses. But as the need for business loans is increasing, they are becoming more and more difficult to get. Commercial banks are the most common lenders of business loans. Below are listed some mistakes people make that act as hurdles in securing loans for them. By avoiding these mistakes, you can successfully secure loans to fund your businesses.
Businesses cannot run on a whim. They need proper planning and execution. More often lenders reject loan applications because applicants fail to come up with a solid business plan. The degree of the solidity of your business plan is directly related to your chances of securing loans. The lenders go through these plans to get an idea of all the variables involved. A proper business plan should be able to address all relevant issues of funding, repayment et cetera.
Poor Credit History
This is the most important thing in calculating the borrower’s credibility. Poor credit history means you are not credible to repay your loans and you have defaulted in the past. This acts as a red flag for the lender and gives him a very solid reason to reject your application.
Ignoring your Affordability Capacity
The first thing to take note of is your capacity to repay. Borrow the only amount that is desperately needed. Some people borrow more than their requirement and ultimately end up being unable to pay EMI. This is bad for your business and for the prospect of securing future loans.
Not Looking around before getting a Loan
Borrowing can be stressful and not everyone is willing to lend instantly. This results in you signing up with the first lender who agrees to lend. This blind following can be a big mistake. What you have to do is to look for alternate sources and do your homework properly and then choose what is the best option for your business.
Select the Collateral Properly
In the case of new firms, collateral is a must. Nobody trusts a new business and needs collateral to know that their loan is secured. In the case of old businesses with established credibility, collateral-free loans can be provided. Lack of collateral results in failure to obtain the loan. The mistake people make is that they don’t pay attention to the nature of collateral before applying for a loan. The lender will always try to seek collateral exceeding the loan in value. You have to make sure that the loan and collateral are of the same league.
By keeping these above points in view, your business funding can be secured with you at the beneficial end. Loans are necessary for the survival of your business; you just have to make sure they don’t cause more harm than good.