Home Growth Applying for a Business Loan? Don’t Make These Mistakes

Applying for a Business Loan? Don’t Make These Mistakes


Applying for a small business loan can be tough. According to the Biz2Credit Small Business Lending Index, institutional lenders rejected more than a third of applications in November 2017. And smaller banks said no to over half of their business loan applicants. But one way to improve your chances is to avoid the most common mistakes business owners make on applications. Take a look at these common errors.

  • No business plan – Would you lend money to someone who had no idea how they will pay it back? That’s how lenders view a business that doesn’t have a detailed business plan. Your business plan should convince the borrower that you have a keen insight into your market, you understand your financials, and you’ve established a game plan to grow your business. Need help writing a plan? Check out this free guide from the Small Business Administration.
  • Applying for the wrong type of loan – Not all loans are created equal. The most common is a term loan that you repay, with interest, over a period. This is helpful if you need a significant amount up front for a big purchase. But if you are looking for working capital that you’ll use over time, a business line of credit might be more appropriate. You tap into it when/if you need it. And equipment loans help you secure funds for new equipment and the item you purchase can act as the collateral. Your financial advisor can help you select the one that best meets your needs.
  • Deposit deficits – Lenders need to be convinced that your business generates sufficient funds to repay the loan. If you are only making two or three deposits a month, the borrower may think your business is not very active. Try increasing the frequency of deposits in the months before your application. And make sure you are depositing all of your revenue—checks, cash, and settled credit card funds. Frequent and consistent deposits should be your goal.
  • Credit blind – Lenders are going to check your credit score so be sure you know what they’re going to find before you apply. It will give you an opportunity to correct any errors that may be in your report. Requirements will vary by lender, but generally, a credit score under 600 or 650 can hurt your chances. The Consumer Financial Protection Bureau offers information on how to check your score.
  • Insufficient collateral – Lenders are looking for a safety net, just in case you cannot repay the loan. It’s called collateral—something of value that you pledge as security for repayment. It might be cash savings, equipment, or property. Be prepared to back your promise to repay with something of value that you’re willing to risk.
  • Lack of preparation – To some lenders, your loan application is a reflection of your business. They see a poorly prepared application as a sign of a poorly run company. So manage the impression you leave by having all the information a lender needs. That can include your business background/resume, credit report, and financial statements. Here’s a list of common documents required for various types of business loans.
  • Looking in the wrong places – There are a number of business lenders. Your local bank is one source, but you should investigate other sources, including credit unions. The Small Business Administration partners with lenders, community development organizations, and micro-lending institutions to guarantee loans, often at a reduced rate. That makes them easier to qualify for. Use their Lender Match to find one.
  • Improve your odds of getting a business loan by avoiding the common mistakes made in the application process. Putting your best foot forward will help give you the best opportunity to secure the funding you need.


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