Getting the right finance often spells the difference between prosperity and failure for a business. This applies especially in the wake of Covid-19, when stress on business is at its highest. Among the most obvious and effective ways to get that finance is to apply for a business loan. But the process isn’t always straightforward: there are myriad pitfalls to watch out for. Let’s take a look at five of the most common mistakes that loan applicants make.
Not having a Business Plan
Your business plan is what demonstrates to would-be lenders and investors that your business is a serious prospect, and has a sense of direction. Your business plan needn’t be lengthy and elaborate – but it should set out your goals, and the means via which you’ll achieve them.
Getting the Wrong Type of Loan
Not all business loans are created alike. If you are having to contend with short-term expenses, then you should opt for a short-term loan – and the reverse if you’re looking for finance over the long term.
Not Locking in a Rate
At the time of writing, interest rates are at record lows. The Bank of England is looking to stimulate borrowing, and they’ve slashed rates in order to make it happen. This situation won’t last forever, however, which is why it’s worth locking in your rate of interest now. That way, you’ll have a much easier time planning for the future, as you’ll know exactly how much you’re set to spend each month.
Not Explaining the Purpose of the Loan
If you aren’t able to articulate why you need the loan and what you’re going to be doing with it, then the lender is unlikely to be optimistic about your prospects. The last thing they want is to sign up to an open-ended agreement, where you simply throw money at a doomed business idea.
Getting finance isn’t always easy. You should expect to be knocked back a few times before you eventually arrive at a lender who’s willing to take a chance on you. By refining your pitch and making sure that you aren’t making any elementary mistakes, you’ll give yourself the best possible chance of a positive outcome. When you’re rejected, make sure that you pick up on any specific feedback, and see if you can incorporate it the next time you make an application.