If your business needs to expand, you’ll most likely need a financing solution to make it happen. But whilst there are definitely plenty of banks advertising their loan products to small business owners, they have narrowed their lending requirements making it increasingly difficult for people to acquire a working capital business loan.
Here’s a list of mistakes often committed by entrepreneurs and small business owners when applying for a loan. By being aware of them, you may increase your chances of getting the capital resources you need so your business can grow.
- Lack of planning
This particular mistake is actually quite broad because there are many aspects throughout the loan application process that a business owner fails to plan for properly. It begins with knowing if they really need the loan or not. They need to determine if spending an extra $100,000 for a new office space and furniture will be good for their business or if they can make do with the old furniture and tighter space for the meantime.
Planning is also essential prior to actually submitting a working capital business loan application. In order to be taken seriously by the lender, the borrower should have a comprehensive business plan that clearly explains his vision for his company, a marketing plan and how he intends to utilize the loan proceeds.
Preparing financial statements and other business loan applications is also necessary before you should approach a bank and apply for a loan. With sufficient preparation, it is more likely that you will get approved for a capital loan.
- Being pressured into making a decision
Banks (and basically all kinds of lender) are in the sales business and if they consider you a suitable candidate, they’re going to use any tactic to push you into a decision. If you allow yourself to be easily swayed, you could end up regretting your decision. Make sure you do enough research, compare several lenders, and find out what their interest rates, hidden fees, and timescales are. These things are very crucial factors that need to be considered.
There are banks that charge as much as 80% and borrowers don’t even realize it. That’s because they only calculate the APR as the total fees divided by the principal amount (the amount they borrowed) instead of computing the interest based on the outstanding amount at every period in time (which is the amortized amount).
Finally, you must also find out how long it will take for the bank to review your application and fund the loan. Most banks take 2 weeks just to assess your application and then take 60 more days to release the funds. Time costs money and in business, time lost is opportunity lost.
- Failure to negotiate
One thing you need to know about working capital business loans is that it’s never a take it or leave it proposition. You can negotiate for a reduced interest rate, better payment terms, and other perks/benefits. You can even haggle for a better deal even if you have bad credit. The secret is to do your research and familiarize yourself with the financing market trends so you can leverage your knowledge to come up with a win-win agreement.
