One cannot start a business without money. But thankfully, there are many business loan companies that offer good terms to entrepreneurs. The problem, however, is that many inexperienced businesspeople commit some common small business mistakes when applying for it. It’s either they don’t know how to start the process, or they don’t have an idea of how to repay the borrowed money.
Here are some of the common small business loan mistakes you need to avoid:
Mistake #1: Applying without a common small business plan
Banks, cooperatives, and business loan companies reject applications that don’t have a business plan. This is because they consider this document as a road map or blueprint for your business’s future. Business plans also detail how you will use the money, from marketing to sales and operations.
Mistake #2: Not improving your credit score
To get great deals on loans or to avoid rejection, you need to make sure that you have a favorable credit score. This figure actually tells lenders how responsible you are as a borrower. A low credit score may tell them that you’re a late payer. But a high score may show that you’re trustworthy when it comes to handling borrowed money.
Don’t worry though, as you can still fix your score by settling your existing debts and correcting some inconsistencies in your credit report.
Mistake #3: Not reading the terms and agreement
Assuming that your application has been approved, you will then receive a set of documents that will require your signature. Before inking it, you need to read every section thoroughly. Otherwise, you may miss the parts that can potentially put you in trouble in the future. If there are some things that you don’t understand, ask your loan officer about them.
Mistake #4: Not having a repayment plan
When you borrow money, you should have a practical plan on how you can return it. Create a detailed course of action, which includes identifying the source of the repayment money. Will it come from your commissions? Or will it come directly from your business’s gross profit?
A business loan is a practical solution for those wanting to jumpstart their enterprise. But to avoid some problems down the road, you need to take note of the mistakes stated above.