Avoid these 7 mistakes while taking a business loan

While the current pandemic has affected the profitability and cash flow of many businesses, there are ways to improve the situation and bounce back. And a business loan is one of the easiest means to do so. These days, financial institutions offer a variety of business loans (both short and long term and secured and unsecured) to help you meet emergencies, conduct daily operations smoothly, expand your venture,and even acquire a new facility. And business loan interest rates are often attractive and the tenures are flexible. However, to make the application process smooth and get an approval quickly, avoid these 7 mistakes.
 

1. Poor financial history or a low credit score:

Before opting for small business financing, check your financial history carefully. If you have defaulted in the past or not paid your credit card bills on time or have pending invoices, a lender might consider you as a high-risk borrower. The same goes for a low credit score, as it shows that you are not creditworthy or cannot repay loans on time. Even if a financial institution agrees to lend you money, the interest rate will be high. So, maintain a good financial record by paying all your dues on time.
 
Also Read: Check Your Business Loan Eligibility
 

1. Not having a proper business plan:

One of the top business loan tips you should follow is to have a concrete plan. That is because, any lender will ask you how much money you need, how you will use it, and how you intend to pay the loan back. So, you should be able to answer these questions properly and support it with data on operating expenses, revenues, profits and future projections. You also need to provide your balance sheet, IT returns, profit and loss statement and cash flow statement for the lender’s easy assessment.

1. Borrowing more than what you can repay :

Availing a small business loan that is more than what you can afford is a big mistake, as a default will ruin your credit score and credibility as a borrower in the future. So, apart from assessing your financial condition, calculate the EMI by using the online calculator most lenders provide. Enter the loan amount, interest rate and tenure to get a precise estimate and then decide if you can take the loan or not. Lenders will also check your income proofs before loan sanctioning,as a part of the business loan eligibility criteria.

Also Read: Fuel Your Business Growth with Unsecured Business Loans

1. Not reading the fine print:

1. Not researching or applying for the wrong loan :

1. Making major changes in business structure :