Business Loan Mistakes

You may feel like you’re entitled to a business loan if you have a strong business idea and are ready to jump into it by incorporating and making it legal.

However, there are very strict criteria at all financial institutions for giving business loans. Traditionally speaking a business loan is not a good investment most of the time. Most businesses fail. Sometimes when businesses fail the owner can’t pay back the loans. That’s the harsh reality. So, it’s not a walk in the park to get a business loan.

Here are probably the top 10 mistakes you might make while trying to get a loan for your Oregon business. Avoid these mistakes at all costs!

1. Credit Rating Uncertainty. Become informed by requesting your credit report from the major credit bureaus. If your credit rating is not great – you’ll likely not get a loan from any banking institution, and many individual lenders.

2. Terms and Conditions. The loan terms and conditions are not optional reading. If you’re not good with legal notices have someone read it for you that you trust – a lawyer for instance. Have them tell you the important points so you’re not under any false assumptions about the terms.

3. Locking in Rates. Lending rates change all the time. If you have a decent rate you’d better grab it because the rate might go up. Choose a loan at a rate that’s fair and be happy with it.

4. Not Justifying Loan Amount. Lenders want to see exactly what you plan on spending the loan on. If they don’t believe you’ve researched it well enough you won’t get the loan at all. Justify the amount to yourself and make sure there are no unanswered questions about where the money is going.

5. Not Maintaining Stability. Even within your organization you want to make sure that you don’t make any major employee changes or changes to the structure of your business just prior to asking for a loan. Lenders want to lend to stable people, stable businesses. Make sure you are one.

6. Not Researching All Options. Don’t go straight to your bank that you’ve used since you saved money as a teenager. Sure it’s convenient, but what about competitive rates? Shop around and find the best deal. It might take a lot of effort, but that can be effort well spent. Don’t miss the SBA Small Business Administration and their program of guaranteeing loans for small businesses.

7. Paperwork / Financials Not Current. Don’t get caught behind in a loan payment and trying to apply for a new loan to fund your business growth. That’s not what any lender or individual wants to see before handing over money to you. Make sure your financial history is rock solid – or as good as it’s going to get before applying for a business loan.

8. No Equity in Your Business. If you don’t have any personal investment in the business… meaning money or assets that you can lose if you default on the loan than you might not get the loan at all. If you’re not personally invested in the business itself, the lender will not be likely to take on such a risk of loaning you capital for the business.

9. No Collateral. Banks, and anyone else that loans you money will want to see some collateral they can have if you default on the loan. This way you have a vested in terest in staying current on your debt.

10. No Business Plan. Don’t go to a lender without a business plan. With friends – sure, you could have an informal writeup and analysis of what you’ll do with the money, where the business is going. Banks only want to see a business plan or they think you’re not serious about the business and the loan.