Business Loans offer an excellent opportunity for Small & Medium Businesses to manage and scale-up their Businesses. Today it’s comparatively easy to avail loans from Banks, & NBFCs under various Government schemes.
But the application process is still complex and needs a lot of attention to avoid rejection or delay. Today, I will highlight such top 5 mistakes to avoid while you apply for Business Loan.
Let’s get started
No Clear Business Plan
Any Bank or NBFC will lend you the money only if they are sure that your Business has the potential to grow. But as there is no concrete proof for that, lenders require a reliable and full-proof Business Plan.
Failure to present such Business Plan will most likely result in a rejection from the lender. So make sure you have a detailed and full-proof Business plan before you make an application. If you need any assistance, our experts can help you out.
More than one Applications
When you make more than one application, it can create a negative impact on your profile. Lenders see such action as desperation from your end to avail the credit, indicating you are in financial crises. Moreover, it shows that you are not confident enough about getting approval from one institution.
As these institutions are wary of lending money to an individual who might not repay the loan, making more than one application will reduce your chances to get approval.
Being a Defaulter
This is the biggest issue for borrowers. If you have ever failed to repay any credit in the past or have a low credit score, it can drastically impact the possibility of getting an approval for Business Loan.
So make sure you never default on your existing loans if you are planning to avail a Business loan in the future. Although many financial institutions now offer the loans, they levy heavy interest on the disbursed amount even to the defaulters.
Applying for more than you can repay
People often make this mistake. Banks or NBFCs will demand all the relevant income & financial stability proof to avail of the desired loan. As these institutions are looking to reduce the number of NPAs(Non-Performing Assets), they tightened the lending rules.
If your income & financial proof do not match the loan amount you applied for, the institution will reject the loan application. So make sure you have all the necessary documents to support the loan amount you are looking for.
Although almost all Business Loans are collateral-free, in some cases the lenders demand collateral to safeguard their money. This can be the case for Letter of Credit, Bill of Discounting, commercial vehicle loan, inventory financing, or another equipment loan.
So make sure you have some collateral to ensure the lender that you their money is saved with you. If you do not have any collateral, there is a strong possibility of loan-rejection.
Not choosing the right Product
If you don’t want to end up paying more money than you should, make sure you choose the right product. There are thousands of lending products in the market to cater to different needs of different borrowers.
All these products come with different interest rates. So it is vital to ensure that you chose the right one. Make sure you compare multiple lenders’ products and select the one that fits your needs and goals.
Mismatch in information
Due to multiple fraudulent incidents in the past, lenders have become very vigilant. They have tightened the process of verification to ensure they are lending to the right individual. It is mandatory to provide correct and detailed information while making an application.
Make sure you submit all the relevant documents without any mismatch in the details. All your personal & business-related documents should be in line with the mandatory guidelines. If you are not sure about what documents to submit, ask our experts for help.
Not reading the Agreement
The Agreement is the final and foremost document in any loam. Due to its complex nature, people often avoid reading it thoroughly. Unfortunately, this is the gravest mistake that you can make while availing of a loan. I have seen many cases where the borrower avoids reading the Agreement in detail and end up paying more.
So whenever you avail of a loan, make sure you read the Agreement in detail. This will help you better understand your rights and obligations.
How to avoid these mistakes?
I understand you do not have the flexibility & time to go through all the details while applying for the loan and reading all the documents. So I would recommend getting help from an expert who can do all the hard work for you while focusing on your core Business.
E.g., Our financial experts at Probal Consulting Group helps Businesses avail desired Business loans, with the lowest possible interest rates. As our experts are brought in years of experience with them, your application’s risk of getting rejected reduces drastically.
I hope this blog has provided much-needed insight into the mistakes to avoid while applying for Business loans. For any more queries, feel free to reach out.
What type of Business loan are you looking for?
Let us know in the comment section, and we will help you out.
Probal Consulting Group is a leading Taxation, Accounting and Compliance firm that helps individuals, MSMEs and other businesses manage their accounting, taxation regulatory compliance affordably.