Mistakes can be costly. Can your business afford to make a mistake? If not, then you need to continue reading so you don’t make any of the four most common small businesses loan solicitation mistakes. But, don’t stop there. All four of these mistakes can be mitigated with the right approach and plan. You can easily apply the SBDC’s four steps outlined below to increase your loan approval so you can avoid making a costly mistake the next time you approach a lender.
TOP 4 Small Business Loan Solicitation Mistakes:
- Mistake #1: Underestimating the value of personal credit.
- Mistake #2: Applying for the wrong type of loan.
- Mistake #3: Expecting a loan without collateral or a plan to pay it back.
- Mistake #4: Waiting too long to approach a banker.
*Survey conducted by Catherine Clifford of The Daily Dose identified four common mistakes small business owners make when they approach lenders.
4 Steps to Increase Your Chances of Obtaining a loan
Step #1: Project the business’ financial needs from start through growth. Taking the time to create or review financial projections will show the needs/challenges the business could face. Because projections are made on a monthly and yearly basis, it will help determine how long the entrepreneur has to get ready for the loan solicitation.
Step #2: Review your personal and business financial situation. The entrepreneur is the first guarantor of the loan. Therefore, knowing how personal credit impacts business credit is important. If the business has been established for several years, take a look at the story told by its financial statements. Should there be any corrections needed, these need to be completed prior to the loan solicitation. Learn how your personal credit impacts your business credit.
Step #3: Decide the correct amount needed and understand where to go. When a lender is approached for a loan it’s like asking them to get involved in your business. If the loan amount request changes, it shows the entrepreneur is not ready, serious, or organized and that the owner is not a good manager. Any of these impressions will negatively impact the solicitation. There are multiple loan programs available to small businesses, but they are not for all types of businesses nor offered by all lending institutions. Researching this information early on saves time.
Step #4: Work with the right resource. Resources like the Small Business Development Center (SBDC) can help entrepreneurs prepare for the loan process by providing guidance and support at no cost. Entrepreneurs receive unbiased advice on how to best prepare, how to improve the solicitation, understand which program is best, and identify the correct lending source. Best of all, SBDC’s have relationships with lending institutions and some even have former bankers and loan officers on staff as no-cost business consultants.
If you’d like assistance in taking care of your financing needs, contact your area SBDC for a no-cost consulting session with our loan and financing experts or take a low-cost class such as the Financing Your Business in Today’s Economy. 813.905.5800