Securing a business loan can be a pivotal moment for any entrepreneur, but you need to be aware of potential pitfalls that could derail your efforts. From damaging credit inquiries to choosing the wrong loan type, here are 5 common mistakes people make and how you can sidestep them.
If your business is in a crunch, or if you’re in a hurry to secure a business loan to pursue a timely opportunity, you might feel the urge to apply for multiple business loans simultaneously to increase the likelihood of at least one loan being approved. When you actually apply for a loan, a lender runs a hard credit check. Multiple inquiries on your personal credit report can impact your credit report. Lenders that run your credit after a few other companies may notice a lower credit score, which can impact approval.
It’s best to use a marketplace to compare multiple rates and options at once. These options typically use a soft credit check to show you rates and terms you may be eligible for. A soft credit check means your credit score won’t be affected, and you’ll better understand what you can qualify for before applying. You can also do your due diligence by comparing the top business lenders on the market before starting a more formal search.
There is a wide variety of business loans on the market today, each with its own suite of rates, terms and use case. Do your due diligence before loan shopping to ensure you’re applying for the right type of business loan for your needs.
For example, you may pay more for the loan overall if you take out a business term loan when you’re only looking to cover the costs of purchasing new equipment. In this case, taking out an equipment loan could save you big bucks since the equipment itself is used as a form of collateral, which helps lower your interest rate.
Choosing not to or accidentally leaving out important information when applying for a business loan can cost you time, money and denial. This could mean providing insufficient documentation or misrepresenting your business’s financial information.
Even if you’re in a rush to get a business loan, it’s important to take the time during the application process to ensure you’re submitting all necessary documents and that they’re accurate. Failing to do so could signal that you’re hiding something and, at the least, delay your approval. However, providing false documents in an attempt to meet business loan requirements could mean an outright denial, being blacklisted or worse.
Business lenders aren’t required to display actual APRs on their website when you’re shopping for a business loan. Each business loan comes with different repayment terms and interest rates. What you’ll pay over the life of your business loan could be way more than you budgeted for at the start.
It’s best to educate yourself before comparing your business loan options. You’ll want to understand how each type of business loan you’re interested in functions and how repayment terms and loan size affect the cost.
Once you understand how the costs work and the average rates, you’ll be better equipped to compare your options and get the best deal.
It’s easy to go for the business lender that seems to be advertising the cheapest rates on the market. However, what you see isn’t always what you get. The best tool to uncover how a lender operates is researching what past and current customers have to say about the lender.
You can check out the Better Business Bureau, Trustpilot and Reddit to get a feel for other customers’ experience. You can also google the lender to see if red flags surface. Checking out your business lender’s reputation is an important step that you don’t want to miss.
Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time, Reviews.com, and carinsurance.com, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics.
This article originally appeared on Finder.com and was syndicated by MediaFeed.org.
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