Businesses need the resources to compete and grow in today’s rapidly changing world. In addition to providing a product or service, a company’s ability to secure capital can be a crucial factor in its long-term success.
Understanding your alternatives and how to make decisions about them is necessary to finance your business.
You must have access to affordable finance to manage a business. Loan acceptance can become overwhelming when you do not pay attention to details. Let us take a look at some common mistakes committed by businessmen while applying for Business Loans.
What common Business Loan Mistakes Should you Avoid?
A few Business Loan mistakes that people can avoid when they apply for a Business Loan have been discussed below. Read on.
1. Inadequate Business Plan
A well-developed business plan is necessary before applying for a Business Loan.
A good business plan will cover everything on how much money you need to plan, launch, implement or sell your products and services. A well-written, professionally presented business plan is crucial to secure financing.
A business plan is a document that defines how your business have fared till now and what you expect to happen with it over the coming years. It provides details about your vision and plans for success.
Without a credible strategy, loan providers could be reluctant to lend to you.
2. No Strong Credit History
Having a solid credit history is an indicator of your creditworthiness.
Lending institutions need a strong credit history when they apply for a Business Loan. Your prospects of being granted a Business Loan will thus be much diminished if you have no credit history.
However, even if you have credit issues, you can still get a loan by taking steps to improve your credit score.
One way to build your credit profile is to pay off old balances and make all repayments regularly. Another method is to take out secured consumer loans where you put up something of value as collateral.
3. Insufficient Documents
You will likely not need a lot of documentation when you apply for a Business Loan. So, it is a good idea to gather your KYC documents, address verification, income verification, business financials and any necessary documents before loan application.
This will save a lot of time and effort during the application process. Inadequate documentation may lead to loan rejection. A loan provider nay deduce that the applicant is either not completely complying with the rules or is attempting to conceal information in this case. The loan application may be rejected outright or delayed as a result.
4. Falsifying or Misrepresenting Financial Information
Another mistake many people make in writing their online Business Loan applications is falsifying or misrepresenting financial data. Do not lie on your loan application and reveal only the real truth about your finances.
Any discrepancies between your actual results and those shown on your application could hurt your chances of being granted the loan.
5. Records of Past Defaults
When you apply for a Business Loan, loan providers want to know about your financial history. They will not lend money when you have had any previous defaults or bankruptcies. Your past credit record will help them determine whether they will lend you money or not.
Thus, ensure you have a clean past loan history to make the process easier.
6. Not Finding the Right Loan Option
Choosing the wrong loan type can result in higher interest rates, fees, and costs. A good option is to shop around and compare several different loan offers before selecting one.
7. Borrowing More than you can Afford
It is essential to borrow only what you can afford to repay. However, if you borrow money beyond your means, you might have to repay a lot more than you borrowed. Estimate how much you need to pay each month and keep an eye on how much you spend before filing your loan application.
8. Applying for Multiple Loans
When a borrower applies for multiple loans or credit cards, the loan provider might assume that they require credit desperately and will not be able to repay the money borrowed.
Loan providers do not want to take the chance of losing money to a borrower requesting many loans due to the potential non-payment of debts.
Additionally, several loan inquiries from different NBFCs could harm the credit score. As previously noted, take the time to thoroughly investigate potential loan options before applying to just one of them.
9. Choosing the Wrong Loan Product
There are several possibilities for finance accessible to small and medium-sized businesses. Some of them include working capital loans, loans secured by property, financing for equipment, and overdrafts secured by securities or collateral. Due to the abundance of comparable Business Loan solutions, entrepreneurs may select the incorrect one.
Make a thorough study and apply for the product that best meets your demands and is easily accessible.
10. Skipping the Fine Print
It is essential to read the terms and conditions thoroughly before signing any document. Be wary of loan providers that try to trick customers into signing documents without reading them first.
With NBFCs like Clix Capital, online business loans are customised to meet different financial needs, and the loan solutions are flexible, affordable, and hassle-free and help businesses grow and expand.
Borrowers can obtain collateral-free Business Loans ranging from Rs. 5 lakhs – Rs. 50 lakhs to take care of the expanding needs of their company, with minimal documentation.
Avoid the errors listed above to prevent your online Business Loan application from being denied. Your financial journey will go smoothly if you borrow responsibly, spend sensibly, and pay the loan amount timely.