Mistakes That First-Time Small Business Loan Applicants Might Make

Being a business person requires not only a business idea but also adequate capital. However, even after careful planning, a business might face cash flow trouble during its entire lifespan at any point in time. Small business owners might face this more often than established businesses.

We believe no business person needs to give up on their ideas as you can get financial support when you represent your business as a solid package. 

In this digital era, NBFCs offer ready finance through easy and Small Business Loans for brilliant entrepreneurial ideas. The total loans sanctioned to Micro, Small and Medium Enterprises (MSMEs) have risen by nearly 50% to pre-pandemic levels. What’s best is that the lending community is actively favouring the regrowth of small businesses. 

Even though NBFCs have easier regulations and conditions, some first-time small Business Loan applicants miss out on these loans due to a lack of clarity on the loan procedure. A minor mistake in loan applications can lead to loan rejection. So, make sure to avoid the mistakes mentioned below to get your Business Loan application approved.

Common Mistakes While Taking A Business Loan

Applying for your first instant Business Loan can be a stressful process. So do not end up committing any of the following common mistakes. 

• Presenting Inflated Books 

Interacting with an NBFC for the first time can be overwhelming. Therefore, many first-time loan applicants hide cash flow issues. It is a common mistake when taking a new Business Loan. 

Inflated books mean when the business owner has reduced the company expenditures and increased the revenue intentionally to showcase a more prosperous financial position than real grounds. 

Inflated books of accounts can show your business more financially competitive, but it should not be done. Always present accurate profit and loss data and balance sheets so that you can make a confident application. When you present the issues to the loan provider early, they have more time to offer an alternate loan structure for your business needs.

Some people argue that they show future projections, but this may come across as incorrect information for the NBFC. It is necessary to have a sound relationship with the loan provider for Business Loans. Moreover, presenting inflated books can also end up in legal issues. Avoid such mistakes to avoid any hassle in the future.

• Misunderstanding the Cost of the Loan

Finance is complicated, and it may be difficult to understand the real cost of a Business Loan. It is necessary to know all fees, taxes, interest rates, additional charges, penalties, and pre-payment charges before finalising a loan. It helps to manage your cash flow accordingly, and you will be able to make timely payments. When the loan is offered at a variable interest rate, you need to understand how much your monthly payment will fluctuate as your interest rate changes. Go for a definite estimate rather than rough estimates to be financially stable. 

• Miscalculating Funds Required

It is a common mistake to miscalculate the funds you require to borrow. It may also be that you miscalculate the funds required for the upcoming expansion project. Both underestimation and overestimation can be bad. Overestimation means the unnecessary high-interest payment each month on a larger loan amount. Underestimation means getting a lower amount than you need for your business growth. Make sure you do a thorough analysis for realistic projections. Remember, every rupee of loan is accounted for, so borrow it wisely.

• Opting for the Wrong Loan

You can find numerous loans available for businesses. It can be an unsecured small Business Loan or a Business Loan against collateral, or a Business Loan for women. First, determine the goals and objectives you want to achieve with the loan. Initial research will help you to find a Business Loan that suits your business goals. Consider the Business Loan eligibility criteria, loan amount, repayment tenure, and terms and conditions before making a loan application. This will help you apply for the right kind of new Business Loan.

• Inadequate Documentation 

A Business Loan can be approved only when you submit complete documents related to the business. In some cases, you might be asked for personal documents as well. Spend some time gathering all the required documents for an instant Business Loan application. Typically, there is the requirement of a business PAN card, bank account statements, income statements and personal documents for KYC. Avoid incomplete documentation to get quicker loan approval. 

• Not Managing Credit Score

The mistake of not gauging your credit score before applying for a new Business Loan may lead to loan rejection. A credit score tells the loan provider how dependable you are when it comes to loan repayment. Also, you need to maintain it. Pending EMIs can negatively impact your credit score and cause an adverse reduction in credit history. Therefore, it is crucial to keep track of your EMI due dates. Make sure there are no missing or delayed payments when you apply for a Business Loan. 

By avoiding such common mistakes, you can improve your chances of securing an instant Business Loan for your company’s needs and ensure a smooth loan process.

Small Loan Business Eligibility

There are many NBFCs in the market providing simple Business Loans. You can consider new-age NBFCs like Clix Capital that offer lower business loan interest rate. You can apply for a business loan of up to 50 lakhs and repay it in a  convenient tenure of 12-48 months.

Following are the simple eligibility criteria for an instant Business Loan: 

• Age Limit: Age must be between 21 – 65 years.
• Business Type: A proprietorship/partnership/private limited company/closely held non-listed company pursuing manufacturing activities, trading, or services.
• Auditing: Reporting audited financial statements for the previous two years. 
• Business Continuity: There should be at least three years of total business vintage.

Conclusion

Even if you have repaid your previous debts, you need to look at your financial habits to get the best deal possible for an instant Business Loan. Avoid mistakes while applying for a Business Loan and repaying it. Do not consider avoidable costs for your business to calculate the loan amount required. Know the penalties, late fees, and pre-payment charges to ensure you get the best small Business Loan funding.