In part one of this two-part blog series, we went over some of the most common mistakes business owners and managers make when applying for small business loans. This is a process that requires some detail and precision, and there are a few specific errors you want to stay away from as you’re dotting your i’s and crossing your t’s.
At Michigan Certified Development Corporation, helping clients obtain small business loans is our specialty. We offer several options, including both SBA 7(a) and 504 loans, to help you obtain the vital funds your business needs to move forward with your plans. What are some other common mistakes we see during the loan application process, and how can you avoid these during your own application(s)? Here’s a primer.
Ignoring Terms and Conditions
While reading every word of the fine print might not be that important for, say, a cell phone gaming app you’re installing, the same cannot be said about a small business loan contract. It’s absolutely vital that you read the fine print, which includes the terms and conditions of the agreement between you and your lender.
This includes items like loan repayment schedules, interest rates, fees, due dates for payment, what happens should you miss a payment, whether it’s possible to request an extension of time on your payments (and if so what does that cost), and other vital information you need to know. Before signing a single piece of paper, you need to confirm that all the important details are conducive to your needs and will not surprise you at a later date.
No Defined Purpose
One of the key areas lenders will inquire about as you apply for a small business loan: What the funds are being used for. If you don’t have a robust plan of use, including details on how you plan to repay the loan and interest along with specific amounts for each item, lenders are likely to deny your application.
A firm, acceptable use of funds will include key components like identifying an idea or opportunity that’s financially viable (i.e., profitable), estimating the length of time it will take before you can expect to recover your initial investment, and the use of funds for a specific purpose. This theme is important not only for loan approval, but also for your company’s future approach to utilizing funds once approved.
Failure to Shop Around
Finally, just like you would for any other important product or service, it’s important to evaluate multiple offers and proposals to ensure you’re getting the best deal possible. We advocate thorough market research so that you can distinguish between offers, terms, rates, and overall value of each potential lender or financial institution.
For more on how to avoid mistakes during the small business loan application process, or to learn about any of our SBA loan services and solutions, speak to the staff at Michigan Certified Development Corporation today.