5 Mistakes To Avoid When Applying for a Small Business Loan From a Credit Union
Any small business owner knows that the cost of running a business is a major hurdle. It’s definitely not insurmountable, but business owners have to be creative and savvy when it comes to generating additional funds to scale, grow and maintain the business. One of the many ways businesses can gain capital or funds to improve their business is through a business loan from a credit union. Credit unions are usually more invested in their communities than larger banks and they offer better interest rates, which is why they’re a favorite of many business owners. But when applying for a small business loan, there are some mistakes to avoid to increase the likelihood of you being approved.
1. Not Having a Business Plan
When applying with credit unions with small business loans to offer, it’s important to have a solid formal business plan. Typically businesses that have a business plan are seen as more prepared and more likely to succeed, as they have put thought and care into several key areas that can really affect the outcomes of their business. Some of these areas include market analyses, profit projections and strategies that will set the company up for success. Any lender wants to know the applicant’s vision for the direction of the company.
2. Insufficient Documentation
Most banking institutions require several pieces of documentation. If it’s an LLC, there needs to be supporting documentation. If the company is a non-profit, there should be clear proof of that. Simple things like identification and proof of address are also likely to be required. Every institution has their own requirements, so be sure to check with the credit union before submitting a loan application. Not having all of the supporting documents can make you look unqualified or like the business is not legitimate.
3. False or Misrepresented Financial Information
Lying on a loan application is one sure fire way to get a loan denied. Misrepresenting information is just as bad as falsifying information. If your company has hit financial hard times, it’s better to explain the situation and present the plan for improving the financial outlook. Be up front. This could mean not getting as much as requested, or it may result in acquiring other resources that the business truly needs.
4. Hiding Past Red Flags
If the business has defaulted before or has any prior bankruptcies, it’s better to tell them, rather than let them find out on their own. The same advice goes for revealing any disciplinary actions taken against a company. Not being forthcoming doesn’t paint a company in a flattering light. Higher interest rates and fine tooth combing of your application are more likely to be the results, maybe even an application denial.
5. Simultaneous Loans
It’s not a good idea to have multiple loans running at the same time. This could be a red flag for a lender as it often means that the company’s cash flow is stressed. It also looks like improper handling of money. It’s better to be patient while researching potential lenders and choose the best option to cover your needs.
Keep in mind that every lender wants to make sound investments. It is the job of small businesses to make themselves look like deserving applicants that will give banks a positive return on their investment. Making any one of these mistakes can potentially cost your company an approval, time, money and more.