Securing finance for your business can be a game-changer. Given its importance, you’ll want to ensure a successful application enabling you to progress toward your plans. At ASC, we regularly see common mistakes businesses make when applying for finance. So, to help you dodge the pitfalls, here are the 10 mistakes to avoid.
Lenders use credit scores to evaluate risk and decide how much to lend. Not knowing your personal and business credit scores could make you fall at the first hurdle.
If you discover that your credit score is low, which could impact your chances of loan approval, you could take steps to improve it before applying for finance.
A lender will want to see a well-structured business plan that gives them confidence you can repay the loan. A vague or weak business plan makes you a riskier prospect and lowers your approval chances.
Making significant changes to your business before applying for finance can make lenders nervous. Lenders want to see evidence of business stability.
Incomplete or inaccurate financial statements can raise red flags. Lenders will carefully assess your business’s financial health to determine whether you can afford the loan repayments. Without the proper documentation and evidence of financial health, your chances of approval are incredibly slim.
Some types of finance will require collateral as security against the loan. You should be able to provide appropriate collateral that aligns with the loan amount you’re requesting.
Borrowing more than you need can cause cash flow issues and financial strain. It could also reduce your future financing opportunities. Conversely, accessing too little can lead to a cash flow shortfall and financial difficulties.
Rates, fees and terms vary across lenders, so it’s crucial to compare options to get the right deal for your situation.
Additional costs, such as arrangement, late payment or exit fees, can increase the overall cost of your loan. These “hidden” costs can sometimes be more significant than the interest rate, so they must be considered.
Not reading or understanding the details and terms of the loan can come back to bite you. If you don’t read the small print, you could end up paying more interest than you need to or agreeing to terms that aren’t favourable to your business.
It’s not uncommon for businesses to focus on getting the funds but fail to plan for repayments. Poor repayment planning can lead to cash flow problems, increased charges and even lead you to default on the loan.
Seeking assistance from a commercial finance broker will help you avoid these common mistakes and significantly increase your approval chances. If you’d like expert help to secure business finance, get in touch. We’ll ensure you avoid the pitfalls and maximise your chances of getting the right finance.
