If you're starting a new business but don't have enough working capital, or if you want to expand your company and need additional funds, consider applying for a business loan. By doing so, you can obtain enough funds to get your business off the ground and make it grow—without having to borrow from friends or risking your own savings. However, you shouldn't just jump into the loan application process! To maximise your loan proceeds and keep your payment amount low, you need to avoid the following mistakes:
Going for the first lender you see
It's easy to believe that all lenders are one and the same and that they offer similar business loans services in Sydney. But if you look closer, you'll see that loan providers bring different things to the table and that some offer better deals than others. So, when you decide to apply for a business loan, research the lenders in the area and compare the terms and interest rates of the products they offer. By doing your due diligence, you'll find the best possible loan that will help you fund your business without costing you a fortune in fees down the road.
Borrowing beyond your capacity
Before submitting your loan application, review your financial limits and determine 1) how much you need to borrow and 2) how much you can set aside for loan repayments. Remember that issues can unexpectedly arise and turn your budget upside down, so you'll want to choose a loan with a monthly payment amount that you can comfortably cover. Resist the temptation to take a higher loan even if you're eligible for it; otherwise, you'll be saddled with high interest rates and monthly payments and you'll put your business at unnecessary financial risk.
Getting the wrong type of loan
Business loans are classified according to their purpose, so it's important to find a loan product that's designed to meet your needs. For example, if you're opening a second location and need funds to secure the property, you must apply for a commercial real estate loan. If you have plenty of outstanding invoices and it's starting to affect your cash flow, you might find invoice financing to be greatly helpful.
Not reading the fine print
When searching for business loans, you'll probably focus on major features such as interest rates and collateral requirements. But, while reviewing these features is important, they shouldn't be the only thing you'll check—you must also read and understand the fine print. This way, you'll know exactly what you're signing up for, and you can spot any hidden terms and conditions that can increase the total amount that you'll pay.
Submitting an incomplete loan application
Your lender will provide a list of the documents that you should submit when applying for a business loan. Gather all of these documents and review your loan application before submission to make sure it's complete. When you comply with your lender's requirements, you can secure loan application approval and you'll receive the loan proceeds as quickly as possible.
Making any of these mistakes can slow down the loan application process and even prevent you from getting the outcome you want. Avoid these business loan blunders to ensure that your application will be approved and that you'll receive the proceeds right away!
