As a person or owner who is about to start the business be it small or big, taking a business loan plays a crucial role. In order to avail the business loan for the business, here are a few common mistakes that are to be avoided at all costs.
Check : Getting a business loan in UAE
1. Not comparing loans
Once you have taken a decision to apply and proceed for a business loan, you should make sure to compare loans from different lenders instead of sticking to the lender that is readily available to you. A business loan is a huge and expensive commitment, so it’s better always a wise step to compare loans or go through as many loan products as possible to get the loan that suits the financial essence of your business.
2. Low liquidity
Lenders who give you loan also consider your liquidity score in order to check your eligibility for the loan. Liquidity score is often regarded as the cash at hand and the cash at the bank. Lenders usually provide loans to the borrowers having sufficient or required cash balance with them.
3. Not having a proper business plan
While you are approaching a lender or bank for a business loan, you need to keep in mind that a formal business plan that depicts or reflects the plan of your business, steps you take to develop your business, how the loan you are going to take from the lender impacts your business in a positive way. The business plan should state the operating cost, revenue, and growth of your business clearly. This thoughtful approach makes the lender think that lending you a business loan is of low to no risk to them.
4. Not keeping a check on the credit score
Credit score plays a vital role while applying for a business loan. Banks or the lenders want to check your personal as well as business credit score before lending you a business loan. This might include your credit card payments, mortgages, billings and credits with the suppliers. A good credit score will always increase the chances of getting a business loan. You can get a copy of your credit score from the AECB and be sure that you have a good personal as well as business credit score as a low credit score might result in the rejection of a business loan from the lender.
5. Not having clarity about the purpose of the loan
If you have a well-maintained credit score, a good business plan, a good thought to take the business forward, it all doesn’t make any sense if you don’t have a clear understanding about why you want the loan for. Banks want to know the reason behind your approach of taking the loan. So, provide them all the details they need regarding the purpose of the loan which makes the approval easier. By doing this, you can also avail a chance to get a loan designed for your specific purpose.
6. Applying for a business loan in the last moment
This is one of the common mistakes all the business owners and entrepreneurs do while applying for a business loan. Applying in the last moment results in not estimating the interest rates offered by different lenders properly thereby stepping at the lender that’s available at that particular moment without comparing or taking into consideration different loan products, interest rates, eligibility criteria etc., So, it’s always advisable to get your business loan as soon as possible.
7. Not having financial statements and other necessary documents
Banks or lenders consider financial statements as one of the main factors while lending a business loan. Not having proper financial statements and necessary documents with you may result in the lender asking you to resupply them or reject your business loan straight away. So, have your current financial statements and related documents with you while applying for a business loan.
8. Taking a loan beyond your affordability
It’s understandable that business loan is necessary to develop certain businesses or to start them. But it’s important to note that you should only apply for a business loan that’s in the limits of your financial condition. Do not take a step to apply for a loan if you cannot afford to pay it back under any circumstances.
9. Having no collateral
Banks or lenders will generally be in a mindset of not to take any risks while lending the loans. Collaterals are needed while applying for a loan against your credit as many banks generally do not prefer to provide any unsecured business loans. So, you need to identify the personal as well as business collateral to secure a business loan. These collaterals you put works as an insurance policy to the lenders and helps them to have it as an important asset in case of your business failure.
10. Going for multiple loans
It’s a known fact that you can go for multiple options to select the best loan before applying for a business loan. But keep a note that you should not go for applying for too many business loans at a time as that information gets displayed in your credit report, influences your credit score thereby reducing the chances of you getting the business loan.
Go through : Top 5 business loans that you can consider in UAE
11. Not reading the terms and conditions properly
Once the lenders agreed to lend you your desired loan, as a business owner, you should read the terms and conditions mentioned in the agreement properly before signing it. Signing the loan agreement blindly might result in you facing problems in the future and also paying higher interest rates. To avoid this, read the entire agreement thoroughly, ask any questions if necessary before signing the dotted line.
Also check : Business loans in UAE
Business development will usually be the dream of every business owner and by avoiding the above-mentioned mistakes you can get a quality business loan with your desired specifications.