Looking for a Loan? 5 Mistakes to Avoid
Getting a business loan can definitely be a difficult undertaking, especially if you’re trying to run a home-based business and a household at the same time. But if you’re going to launch your business venture or expand your horizons, you might need some outside financial help to make it happen. After all, the reason you’re working in the first place is probably because you need a second income (at least, that’s probably a large part of it), so you likely don’t have a lot of extra money just sitting around to invest in your business. In any case, you could be in for a world of trouble if you don’t know what you’re getting into with a lender. Here are just a few common mistakes you’ll want to avoid when you go to secure funding for your home-based business.
1. Choosing the wrong time to seek a loan. Unless you have formed some kind of corporation or separate business entity, your personal and professional finances are probably blended. This is a mistake in and of itself, and you should rectify it as soon as possible. However, there is a bigger problem, which is that any financial troubles you’re experiencing personally could affect your ability to get a business loan. Did you recently purchase a home, car, or other large ticket item? This debt could make it difficult to secure another loan. Or perhaps you’re in the process of taking on a partner who may be perfect for the business, but happens to have financial problems of his own. The point is, you need to be prepared for probing into your financial situation, so get things in order before you apply.
2. Choosing the wrong bank. You might think that all banks are the same, but that’s where you’re wrong. Just because you love the bank that holds your personal accounts doesn’t mean it’s a good fit for your business loan. For one thing, it may have a poor record of approving such loans, or it might not be as competitive as another institution. Maybe the requirements are stricter than another lender. In short, you need to check out other lenders rather than simply going with the one that’s familiar.
3. Being unaware of alternatives. A bank is the most common choice for a business that wants to borrow money, but it’s not the only choice. You should also consider personal loans (from friends and family), silent partners, venture capitalists, and angel investors (amongst other options). And you should be careful to consider the many different types of loans that a bank might offer, not just the first one they push on you. Exercising due diligence and exploring every opportunity could save you a lot of time and money in the long run.
4. Failing to know requirements ahead of time. If you go into a bank unprepared, it’s no one’s fault but yours when you get denied a loan. It’s easy enough to call ahead or meet with a lending agent to learn the requirements you must meet, including your credit score, proper accounting, and statements, and potential collateral, just for example.
5. Signing too soon. Once you’ve gone through all the rigmarole to get approved, it can be tempting to sign anything the bank hands you. But you need to go over the contract with a fine-tooth comb to ensure that you’re getting exactly what was discussed, from interest rates to deadlines to penalties. If you don’t understand something, either ask the bank agent to explain it or request a copy for your lawyer to proof.
Jennifer Kardish writes for Car Loan Payment Calculator where you can find information on leasing vs buying a new car and much more.
Image source: small-business-loans-for-women.org