5 Mistakes Business Owners Make When Getting A Business Loan

by | Jan 6, 2018 | Business Loans | 0 comments

Mistakes small business owners make when getting a loan

Biggest Business Loan Mistakes

Business loans are a great way to help small business owners cover the costs of establishing a business, investing in new equipment or expansion, or even to cover unexpected circumstances.
However, you don’t want a loan that is going to help you in the short-term, but become a burden in the long-term with interest repayments hindering the growth of your business.
 
Here are five mistakes that business owners often make when getting commercial finance, and how to avoid them:

1. Not getting the right loan

There are many different types of commercial loans that suit different scenarios. Which one is right for you depends on your needs.
For example, if you need some extra money to cover short-term cash flow shortages, a line of credit may be the right choice. With a line of credit you are able to access money up to a pre-approved limit, and are only required to pay interest on the outstanding balance.
Or maybe it’s time to upgrade your old equipment? Then I’d suggest asking your mortgage broker about equipment finance. This is where the newly financed asset will be used as security while you make your repayments.
Whatever the reason you need a loan, there are specific loan products out there suited to your needs. If you choose the wrong one, you could result in paying more than you need to over a longer period of time.

If you’re not sure what loan is right for you, that’s where your mortgage broker can help.

2. Not having a business plan and thorough, up-to-date financials

Before a particular lender will give you a business loan, they want to understand how your business operates and makes money. They need to be assured that your cash flow will be sufficient to cover the loan repayments.

A carefully considered business plan and accurate financial records establishes your goals and how you plan to reach them. Your application may be rejected if you don’t provide enough required information.

Before you apply for a business loan, make sure your books are up to date and prepare reports such as balance sheets, profit and loss statements and cash flow projections. You may also need to provide information about your personal financial situation.

3. Ignoring, fees, charges and other expenses

Make sure that you understand the full cost of a loan before committing to it. Keep in mind that on top of interest repayments there are likely to be other costs including:
• Application fees
• Administration fees
• Contract or appraisal costs.
These hidden fees need to be paid no matter the size of the loan. Therefore it’s a good idea to discuss increasing your borrowing amount with your mortgage broker to cover these extra costs.

4. Not checking your credit report

You need to make sure your credit report is in good standing because lenders will check it when assessing your loan application. This can have a huge impact on the interest rate that they are willing to offer you.
Ask for a copy of your credit file from a reputable credit reporting body and go through it carefully to make sure all the information is accurate. If it’s not, you’ll need to correct it before applying for a business loan.

5. Not shopping around

Having the necessary funds to run and grow your business is important, but you want to make sure that getting a loan won’t become a pain in the long run.

At Specialised Mortgage Solutions, we take the difficult and time-consuming task of shopping around off your hands. We have access to hundreds of different loan products from over 25 different lenders.

With 25 years of industry experience, you can be assured that we will find the right loan for you and your business. To find out how we can help you with commercial and business finance, give us a call anytime on (02) 5317 5114.