The process of getting a loan for your small business is neither easy nor intuitive. You will need to work hard to present your business as a strong loan applicant, and being aware of the most common problems with applicants that give lenders pause is going to give you a leg up in making a positive impression. Here are some of the missteps and red flags that could hurt your chances of getting a small business loan.
Not Knowing or Understanding Your Credit Score
Business creditworthiness is high on the list of criteria that lenders use when reviewing requests for SBA loans. If you don’t know where you’re at with credit, you can’t really make a reasonable determination about whether applying for a loan is worth your while.
Be vigilant over your score so you can learn about problems when you have time to correct them rather than learning about them when you have already submitted an application for an SBA loan. Also, looking at your score periodically lets you know what activity is bringing it up or down.
Trying to Explain Away Credit Report Problems
If there’s an issue on your credit report like an error or a negative remark that you’re in the process of disputing, having an explanation about why it’s there is not likely to allay lenders’ concerns. They have to interpret your score as it is and telling them about the reasons for an issue is no substitute for taking remedial action to resolve it.
Not Describing Your Plans Sufficiently
You should describe how you plan to spend the proceeds of a small business loan with precise detail. Approximations about different expenses or including big ranges on each cost item could make you look unprepared and unprofessional.
Going After the Wrong Lenders
When you’re looking at SBA loans, it is important to seek out the right lender. Ideally, you should look for a financial institution that is familiar with your industry and what companies have to do to afford their day-to-day expenses. With insight into the inner workings of a company like yours, a lender will be able to make well-informed determinations about your business management practices and potential to achieve sustainable growth.
Lastly, it is important to recognize that disorganization is one of the worst red flags about a business to lenders. Intensive planning and preparation will help you stay organized throughout the process of trying to get a small business approval.