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Mistakes to Avoid When Applying for a Business Loan

Whether it's a business loan or a personal loan, there are

several common loan application mistakes that many businesses

and individuals often make when applying for a loan. Avoiding

loan application mistakes is your most valuable tool in being

approved on a loan. The following common loan application

mistakes can interfere with loan approval.

1. Being unaware of your credit rating.

Before even attempting to get a loan, know where you stand.

Request copies of your credit reports from Experian, Equifax,

and Transunion, which are the three major credit reporting

agencies. Your reports will show whether or not you've made your

payments on time, or if you've defaulted on a loan, declared

bankruptcy, or had any other financial problems. Additionally,

it will show positive items, such as when you've paid your bills

one time, or when you've paid a loan in full. Consistently

paying your bills as scheduled shows that you're worthy of a

loan, and is very attractive to a lender. If your credit has

undesirable listings, be aware of them, and be prepared to

explain them to the lender.

2. Not understanding the loan terms before signing.

Avoid the most common loan application mistake, and make sure

that you read and fully understand everything involved with the

loan before signing. Not only should you take the time to read

the fine print in its entirety, but you should also ask

questions about anything and everything that you don't fully

understand. This is a common loan mistake because individuals

are often so anxious to get the loan that they fail to pay

attention to the details. Don't assume that the terms on this

loan are the same as for "any other loan." Know what you are

signing before you sign.

3. Continuously searching for a lower interest rate.

Interest rates change often. If you feel you've found a great

rate, lock in before the rate increases to avoid this loan

application mistake. People quite often make the loan

application mistake of getting greedy, opting to see if rates

will drop even farther before locking in on that rate. This loan

application mistake of continuing to search for an even lower

rate often works against you, rather than in your favor,

especially if you have to wait longer to obtain the loan that

you perhaps need immediately, or worse, if the interest rates

actually increase rather than drop.

4. Not explaining the details for needing the loan.

Yet another common loan application mistake of not fully

explaining how the loan will be used. For example, if the loan

is to be used for business purposes, explain the details of how

you will use the money. Lenders want to see that you know

exactly how you will use the money, and how this loan will meet

your needs.

5. Make major loan application changes.

Show the potential lender that you are stable and can make solid

decisions. Don't apply for a business loan, for instance, and

submit a loan proposal, only to call the lender a while later

and tell them that you've reconsidered and plan on using the

money differently than stated in your paperwork. Make your

decisions prior to this, and don't make this loan application

mistake of being unsure when you apply. Submit your proposal

only in the event that you are 100 percent sure of your actions

and will not change your mind.

6. Apply only to the most convenient lender.

While heading to the bank in which you do business with is an

obvious reaction, avoid the loan application mistake of not

shopping around with other lenders. Check into obtaining a loan

with a credit union, and if you're searching for a small

business loan, consider investigating programs offered through

the Small Business Administration. This loan application mistake

is also easily corrected by making just a few phone calls to

lenders' check rates and offers.

7. Not having current finances in order.

Whether you're in need of a personal loan or a business loan,

don't apply for a loan without proper financial documentation

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for the lender. This loan application mistake can either delay

the loan process, or cause the lender to immediately turn you

away.

8. Failing to have equity.

Especially for a business loan or a home loan, having some

equity, such as a down payment, can significantly increase your

changes of securing a loan. While this loan application mistake

is sometimes unavoidable, be aware that lenders are not as

enthusiastic to offer loans to those without equity, especially

loans for large amounts or for individuals with less than

desirable credit scores.

9. Having no collateral.

As with equity, no collateral gives no assurance to the lender

that the loan will be repaid. Having collateral increase your

chances of having the loan approved.

10. Not having a business plan if the loan is for business.

Not having a business plan in place, or employing a poor

business plan, is an inexcusable loan application mistake, yet

can be easily corrected. If you're starting a business, or wish

to obtain funding to expand on an existing business, you need to

demonstrate to the lender how the business will operate and make

money. A business plan is essential for a lender to see your

goals and see how you plan to reach those goals.

11. Not avoiding hidden loan costs.

Avoid signing a loan that requires hidden costs. This loan

application mistake might include fine print stating that annual

fees, bank charges, closing costs, commissions, and balloon

payments are required. Be informed, and don't sign anything

without being completely sure what it means.

About the author:

Rebecca Game is the founder of Digital Women ®, an online

community for women in business. A 30 year entrepreneur and

dedicated to helping other women find small business loans.

Visit her site: Loans for Women

http://www.digital-women.com