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Blunders To Avoid When Applying for a Small Business Loan

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Published: 26Apr2010
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If you plan to apply for a small business loan, be sure to do your research in advance. Take note that one wrong step can cause your loan application to get declined. In this article, let us discuss the most common mistakes committed by many loan applicants:

Not checking your personal credit report. For new entrepreneurs, prospective lenders will be taking into account their personal credit history before granting approval. Needless to say, if you have an unimpressive credit history, lenders may doubt your capability to stand by your business loan. Since there is no way to be sure as to which credit reporting agency a lender will inquire about your report, it's best to order a copy of your report from each of the three major credit bureaus.

Not reading the fine print. Never make decisions in a hurry. Before signing up a deal with any lending company, be sure that you have spent time analyzing your business loan application. Remember that predatory lenders do exist and the only way you can avoid them is by doing your own research.

Not locking the interest rate. Before signing up a loan deal, it is recommended that your request your lender for a lock rate. Doing so will protect you from unfair increments in your interest rates while in the middle of your repayment term.

Not stating your purpose for getting a loan. When applying for a loan, you need to clearly present your purpose for acquiring financing. How do you intend to spend the funds in case your proposed loan is approved? Lending companies will consider whether or not you have a valid reason for borrowing such an amount of money.

Last minute plan changes prior to submitting your loan application. Of course, lending companies will only provide financing to stable small businesses. With this in mind, it's best to avoid implementing major changes about your business while in the process of applying for a loan.

Getting a loan from the first available lender. Be sure to explore all possible options that you have in getting small business financing. Aside from banks and lending companies, don't forget to check out the loan programs available from the SBA (Small Business Administration) and credit unions in your area.

Not preparing your personal and business financial statements. Generally, small business lenders will require the submission of personal and business financial documents such as balance sheets and taxes.

Not preparing your collateral. Since a loan for small business often involves a significant sum of money, most lenders will require collateral. However, choosing a secured loan has its advantages such as lower interest rates, longer repayment period, and high loan limit.

Not preparing your business plan. Are you done creating your business plan? If yes, make sure it is presented in a way that can impress a potential lender. Do not rush in executing this important process. If you are not sure how to create a business plan, ask help or advice from a business attorney or business consultant.

Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to startup business loans, SBA loans and startup business credit cards.

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