7 Business Loan Application Mistakes and How to Avoid Them

Did you know that 29% of businesses fail just because they run out of capital? 

Having the proper funds to thrive as a business is crucial. Unfortunately, not all business owners can come up with all of the capital necessary themselves. 

As a result, some of these business owners turn to a business loan provider. About 43% of small businesses applied for a loan last year alone. 

When going through the loan application process, you want to have your application look the best it possibly can. 

What should you avoid? Here are seven of our biggest business loan application mistakes. 

1. Not Having a Business Plan 

One of the biggest mistakes that you can make with your business loan application is not having a business plan. Lenders need to hear what your plan is and what you want to do with this money. 

Because of this, it significantly helps if you have a business plan prepared to present to this lender. You want to tell them where each dollar they give you is going, what these things are going to do for your business once you get that money, and how this will help your business grow. 

Financials are not everything when it comes to business loans. Lenders want to see that the person driving the car is not going to crash it the first chance they get. 

2. Having Poor Financial Records 

Another big mistake some business owners make is not thoroughly reviewing their financial records before they submit a business application. Lenders want to look at your financial records to see how your business is doing, where it can thrive, and if there is room to grow. 

However, they will also have a good idea of if your financial records are accurate. If they are not, then that can make them question your ability to run a business and their ability to trust you. 

Unfortunately, this is a more common problem than you might think. About 69% of CEOs have made a business decision based on inaccurate financial data. 

Lenders want to minimize this possibility. So, if you submit a business loan application with inaccurate financial records, you will significantly decrease your chances of getting approved for a loan. 

3. Not Reviewing the Contract Thoroughly 

When it comes to big business deals like this, you are going to want to make sure that all of the details are in order. If you are not confident in your contract skills, you may even want to hire a lawyer that specializes in contract law. 

Not reviewing a contract for a business loan can have dire consequences for business owners. It can mean agreeing to unfavorable terms such as the date by which you have to pay the loan off, the exact interest rate terms, what you are getting for this loan, and more. 

Make sure that the contract verifies everything that you verbally agreed to before signing. 

4. Not Having Skin in the Game 

This next tip will tell lenders just how much you are invested in your business. Here, lenders want to see that you are willing to put your own resources into your business. 

What this means is that it can help your case for a business loan if you provide evidence that you have put in some of your own money to get your business where it is today. 

It tells lenders that you are dedicated to your business, you have something to lose, and you are making an active effort to grow your business. Lenders would prefer to work with someone who is completely dedicated to their business, so showing this could get you one step closer to approval. 

5. Having Poor Credit History 

Are you someone that has fallen behind on several payments? Have you attributed debt that you can't pay off? 

If you are or have been in this situation, your approval odds will take a big hit. The main reason for this is that your credit history tells lenders your track record of paying bills on time. 

Here, you would have to make monthly payments to pay your business loan back. If lenders see that you have failed to do this in the past, they may lose faith in your ability to do this now. 

6. Applying for Too Many Loans 

Some business owners may try to apply for multiple business loans in a short period. Lenders typically have access to your financial history and can see how many times you have applied for a business loan in a short stretch. 

Whether you get approved or not, applying for too many loans is bad. 

It is bad if you get approved because it means your finances are not stable or your financial records are inaccurate. It is bad if you do not get approved because it can send a signal to lenders that you were denied for a reason. 

7. Applying for Too Much Money 

Finally, do not overplay your hand. Only apply for the money that you need. 

If you apply for too much money, it can get lenders to start asking questions like why you need that much money. You may not have a good enough explanation to get approved. 

On top of this, having extra money can put dangerous thoughts in your head such as rapid expansion. Then, when it comes time to pay the loan back, you suddenly lost the money and are in a bigger hole than when you started. 

Think carefully about how much money you need. 

Avoid These Business Loan Application Mistakes 

These are seven business loan application mistakes that you want to avoid. Look for other options if you have poor credit history or if you did not put any of your own money into the business. 

Make sure you know how much money you need, have a proper business plan, have accurate financial records, and review contracts carefully. 

Do you want to know your business financing options? Apply for a loan here.