Top 6 Mistakes to Avoid While Taking a Business Loan



A business loan can prove to be extremely useful while establishing your business or in case an unprecedented mishap takes place. Many commercial mortgage brokers in Australia may try to entice you with many schemes. But it is a trade loan that you would never want to be short-term gain and long-term pain. In this article, we’ve identified the six commonest mistakes that businesses should refrain from when it comes to business and commercial finance. 

Mistake #1: Lack of a Substantial Business Plan 


There are many financial institutions apart from commercial property lenders who want to know more about the operations of your business and the ways it will generate revenue. Accordingly, in other words, your present and future cash flow can cover the loan’s repayments. A solid and well-strategized business plan illustrates your goals and the ways you plan to reach them and establishes that you’ve considered all the minute details. Suppose you can elaborate on your business model, products, services and target market. In that case, the lenders or your broker will be in a better position to customize a financial product to your business needs. 


Mistake #2: Lack of an In-depth and Up-to-date Financials 


Detailed, present financial records let lenders precisely understand the position of your business. When you fail to provide adequate information, they will either reject your application outright or allow you to spend more time arranging the required details. Before you approach any lender, ensure that your books are up to date and properly arrange reports like the following: 


  • Profit and loss statements  
  • Balance sheets 
  • Business Account Bank Statements 
  • Tax returns 
  • Latest business activity statements (BAS) 
  • Cash flow projections 
  • Debtor and creditor reports 


Mistake #3: Failure to Avail Yourself of the Accurate Loan for Your Business Needs 


A growing business requires sufficient capital to meet expenses, invest and expand. However, it’s necessary to know why you require the funds and what loan perfectly suit that need. Whenever you need new equipment, ask your specialist SME Broker about an equipment loan, to use the asset as a security while you repay your debts. This can help to make the loan easier to secure. If you need to cover short-term cash flow shortages, then presently there are multiple funders to provide short-term business loans, invoices or cashflow lending for nearly 12 months with a pre-approved limit. 


Mistake #4: Being Completely Oblivious to the Interest rate, Fees and Hidden Expenses 


It’s important to calculate and find out the total cost of a loan before committing to it. Besides the interest expenses, there are several other fees, like the following: 


  • Application fees 
  • Contract or appraisal costs  
  • Administration fees 


Irrespective of the size of the loan, these will be incurred. Accordingly, you might find it important to discuss hiking your borrowing amount with your broker to cover those costs. 


Mistake #5: Failure to Check with Multiple Lenders for the Most Suitable Deal 


Being equipped with the funds to run and grow your business is necessary. However, you must take the time and shop around for a loan that doesn’t impose an additional burden in the long run. 


Mistake #6: Not Being Aware of Your Credit Score 


Is your credit record impressive enough? During the assessment of your application, a few lenders will simplify approvals for loans up to $1 million for excellent credit scores. Your Credit Score can have a notable impact on the interest rate you’re offered. You need to seek a copy of your credit file from a reputed credit reporting body or a specialist SME Broker and carefully go through it to ensure all the information is correct. When it isn’t, take the necessary steps to rectify it before beginning the loan application process. 


Inference 


A specialist SME broker can help you figure out the right loan out of the best business loans and confirm the finance that suits your business the most saving you a significant amount of time and ensuring that you avoid making these six common mistakes.  

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