4 Mistakes Small Businesses should Avoid When Applying for a Bank Loan.

4 Mistakes Small Businesses should Avoid When Applying for a Bank Loan.

Getting a loan from a bank is no cakewalk these days, particularly for small businesses. So, we asked those banks, which make it their business to lend to small business, how entrepreneurs can increase their chances of securing loans.

At Moneyfinder, we get scores of applications for small business loans ranging from INR 2 lakhs to INR 5 crores, so we decided to jot this small list of 'what small business should be aware of' while applying for that so essential loan. Here, we share the top four mistakes business owners make when applying for a loan -- and how to avoid them.

Mistake #1: Underestimating the value of personal credit and Credit History (CIBIL Score). Banks look at your personal credit history (credit cards, EMI payments and personal bills via CIBIL) to get a sense of your track record with financial responsibilities, “If a business owner hasn’t shown the diligence in managing their personal credit, there is potentially a stronger likelihood that they will take the same approach to their business credit,” .

Mistake #2: Applying for the wrong type of loan. One of the most notable pitfalls We see is small business owners using credit intended for a short period of time for a long-term purchase, or vice versa. “They will use the wrong type of credit product for the wrong type of purpose,” .For example, if you buy a piece of machinery with a loan that was intended to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under.

Mistake #3: Expecting a loan without collateral or a plan to pay it back. A banker won’t approve a loan that he doesn't think has a chance of getting paid back. So be sure to detail in your business plan how you are going to make the revenue to pay the loan back or any collateral you have to back it up. Also, be sure to explain why the loan is critical for your business. “Make sure there is a solid business plan as to what they are planning to do with their business and how the financing will support the mission for the company.”

Mistake #4: Waiting too long to approach a banker. Small business banking is about relationships. There's a much better chance bankers will lend you money when you need it, if they already know who you are and what your business is. Not only will you develop that face-to-face relationship, but you will also have the opportunity go get your business financials organized and in shape with a banker’s eye in mind.

For all small business loans, please get in touch with us, write to us at info@moneyfinder.in or call us on 91 8355 955 000.

Disclaimer - All information in this article is sourced from various websites. This article is compiled by team at Moneyfinder and any content is not owned by us. This information is true as on 08th January 2013.