Securing a Small Business Loan: 5 Mistakes to Avoid

Are you and your small business looking for a few extras funds to help you get the ball rolling? Have you started the search for loans for small businesses? If so, then there are a few critical mistakes that you’ll want to avoid along the way.

Some mistakes can sabotage your chances of receiving the small business loan at all. It’s important to understand what errors you can’t afford to make so that you can actively avoid them.

See below for an in-depth guide listing all of the different mistakes you should try to avoid making as you go to secure a small business loan for your company.

1. Not Finding a Trusted Lender

You wouldn’t purchase a car from a car salesman or car dealership that you didn’t trust. You wouldn’t purchase a product from a company that you knew nothing about. Why do any differently when applying for a small business loan?

Remember, when you secure a small business loan, you’re locking yourself into a business relationship with the lender that’s providing the money upfront. Some are more flexible with their terms, while others are unwavering. Even worse, some will try to trick you into signing documentation without you reading diligently through the details.

It’s important to find a lender that you trust. We recommend looking at local banks, as they tend to be more heavily invested in the success of your business. They want your small business to thrive because it bodes well for the community that they call home. 

They’ll take the time to listen to your goals and the spending plan you have for the money you’re trying to secure. Local banks can help you with any other loans you need as well, such as mortgage loans, car loans, and beyond. 

If you need a mortgage loan with great terms and customer-friendly rates, be sure to visit https://www.farmersbankidaho.com/personal/home/mortgage-loans for more information.

2. Not Giving Yourself Options

We’re going to use the car-buying example one more time. When looking for a new car, you don’t just walk up to a car dealership lot and purchase the first car they point you towards. You take your time, research some options, and take a few test drives before choosing the car you want.

The same thought process should be applied when you’re shopping for small business loans. We recommended local banks in the paragraph above, but those aren’t your only option! There are other lenders that you can find online. You can also consider things like angel investors, having your business-minded colleagues buy into the business, etc.

If you limit your options, then you’re giving the lender all of the leverage. You’ll have no choice but to settle for the rate, terms, loan amount, payment methods, and anything else they determine. 

Instead, have a few different options that you can compare. How much money are you looking for? Do any of them provide loan terms that you’re more comfortable with? Will any of them give you the funds faster? 

3. Not Knowing Your Credit Score

Your credit score plays a bigger role in securing a small business loan than you might imagine. It can decrease or increase the number of lenders who are willing to give you a loan. It can affect how much money you can receive. It can determine the approval ratings and so much more.

It’s important to know your credit score before you begin your search, that way, you know what to expect. For example, if you have a lower credit score, you know that you’ll likely have to go through an exhaustive search. 

We recommend getting your credit score from each of the three major credit bureaus—Equifax, Experian, and TransUnion—to learn where you stand and whether or not you’re likely to get a loan. 

Even if you do have a bad score, you still have a shot at getting the loan. If your business has been running for a few years, some lenders don’t see the credit score as the end-all-be-all.

4. Not Having a Plan in Place

Let’s say that you do get the small business loan in the exact amount of money you were looking for, what is your plan for how to spend it? If you can’t answer that question right away, it’s time to go back to the drawing board.

Most lenders will want to have a firm idea of how you intend to use the money they lend you. Why? Because it correlates to the likelihood of you paying back the loan with interest.

More importantly, a concrete plan will help your business flourish. Use things like SMART goals and budgeting to create a spending plan and help your company thrive.

5. Not Negotiating

While many people out there cringe at the thought of haggling or negotiating, it’s an important part of the process. Contrary to popular belief, the lender doesn’t want you to bend to their every demand, nor do they expect you to.

Lenders of integrity want the SBA loan to make sense for both sides, but they don’t know your business as well as you do.

Negotiations allow for a friendly conversation about loan terms, amounts, and details. It’s the first step towards building a healthy business relationship with your new lender.

Invest in a Small Business Loan for Your Company Today

Now that you have seen an in-depth guide on the crucial small business loan mistakes you should avoid making, be sure to use this information well.

Start by creating a plan. How do you intend to spend the money from the SBA loan you receive? What are your intentions to help your company grow? 

Be sure to browse our website for more articles on small business loans, as well as many other topics that you will find helpful.

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