The Top 6 Mistakes To Avoid When Seeking an SBA LoanAug 07, 2023
It can be stressful to find funding for your small business, but there are simple steps to take to make your experience a smooth one. Here are some common mistakes business owners make when applying for an SBA loan.
If you have a disorganized business life, you can easily tank your chances of getting a loan. No matter what type of loan you’re seeking, each lender has different document requirements. Check out what is needed and make sure you have up-to-date paperwork ready to go before the process is in full swing. In general, required documents will include:
• Business tax returns
• Income statements (year-to-date)
• Balance sheets (year-to-date)
• Schedule of liabilities (business debts)
• Personal tax returns
• Personal financial statement
Work with a financial professional like a bookkeeper or accountant to set up systems and processes to keep you organized from the day you open your business. Pay attention to paperwork security and strive to improve your organizational practices continually.
Not asking for enough money or asking for too much.
Before you start investigating funding for your small business, do the math. Know exactly what you need to borrow to meet short and long-term goals. Your business plan and cash flow analysis will come in handy here.
Not building a business plan.
A business plan is often required when applying for a small business loan. This is a formal statement of goals, reasons they are attainable and plans for reaching them.
Not paying attention to your personal and business credit ratings.
Actively managing your personal and business credit scores can help you secure more financing at better terms when you need it. Your business credit score ranks the creditworthiness of your business just as your personal credit scores serve as financial ratings.
Not reading the fine print.
Some financial institutions might advertise enticing initial loan offers that mask unfavorable terms. Low introductory interest rates, could hide excessive prepayment fees that make it tougher to close out your loan early. Always read the fine print to make sure that the loan flexibility meets your needs.
Inflating debt without increasing income.
The more small business debt you have, the harder it is to get approved for an SBA loan. When you take on a debt, be sure it will increase your income too so you can more easily obtain business financing.
Be sure you do all your homework before undertaking more debt for your company. Working a professional who specializes in SBA loans can help you navigate the process so you can make the right decisions for your small business.
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