Top 10 Mistakes That Borrowers Make

Have you ever been declined for a loan?

Have you ever been granted a loan at a very high interest rate or on terms that are strongly in favour the lender?

It may well have been that you made a mistake in your loan application, or in the documents that you gave to the lender.

Here are the top 10 mistakes that we see borrowers make:

1. Bank statements and the transaction activity in them don’t reflect the Audited Financial Statements or Income Tax Return. This may simply be case of missing bank statements, or undisclosed bank accounts.

2. Audited financial statements for the current period, don’t align to a prior period, with different values that should be same. There may have been a restatement, but any restatement should be accompanied by notes to the accounts.

3. Supplying inaccurate or out-of-date information. It’s important to maintain your financial records as lenders will assess these documents as part of your application. Errors or out-of-date information can delay the application process or worse, make your business seem like a riskier investment than it really is.

4. Not explaining how you plan to use the loan. It might sound simple, but lenders want to know how you plan to use the funding and how it will help your business succeed and grow. This demonstrates that you are organised and clear on your business objectives and builds trust with lenders. If you do not offer a clear explanation, you might leave lenders wondering how serious you are as a business owner and whether you are capable of making your repayments.

5. Making major changes to you business. Lenders want to see evidence of stability within your personal and business finances. Similarly, making significant changes to your business structure, products, customers or personnel right before applying for a loan may give the wrong signal to lenders. While it’s important to do what’s best for your business, making changes could hurt the perception of your business.

6. Too much debt and not enough equity. Lenders want to know that business owners are reliable and committed to making the business a success. If a business owner does not have some equity in their project, lenders may be less enthusiastic to take a risk and provide a loan. It’s not a necessity but having equity in your business can increase your chance of securing the loan.

7. Not having collateral. Collateral is not always required for a loan, such as when you are applying for an unsecured business loan. Pledging collateral, however, is required for certain types of loans and even if it’s not a necessity, can increase your chances of approval. Collateral minimises the risk by lenders, as it acts as security in the event you are unable to make your repayments.

8. Applying for the rong type of loan. There are lots of different types of loans available to businesses, so it is important that business owners consider which type is best for their business. Applying for a loan that doesn’t suit your business needs or with strict requirements will likely be a waste of your time and energy. You’ll want to consider how much capital you need, what you need it form, whether you can provide collateral to secure the loan and your preferred terms and repayment options.

9. Waiting until its too late. Many business owners wait until they are facing financial troubles before they apply for a loan. This adds more stress to your situation and leaves you and your business vulnerable. You might be digging a bigger hole for yourself if you rush through your application are not approved. But don’t wait until you are desperate to apply. Take the time to consider your options and you’ll end up with a loan that’s right for your business. When you have the right information at your side, you can make a better decision for your business. Be sure you compare the different types of loan options available and have an understanding of what lenders are looking for in your application.

10. Not reading the terms carefully. This is more of a mistake you might make AFTER you’ve been approved, but it is important to remember to read the loan terms carefully before signing. Make sure you understand what’s expected of you. You need to feel comfortable with the length of the loan, the frequency of your repayments and any specific policies that are put forward by the lender. Be sure to ask questions if there is anything you do not understand.