5 Common Business Loan Mistakes
Access to finance is essential for Australian small businesses to grow and thrive in a competitive market. However, not all business loans are the same, and any type of lending should be tailored toward the business’ long term goals and requirements.
In this article we look at 5 very common mistakes we see with our clients, particularly with first time borrowers. Avoiding these errors could save you thousands of dollars in fees and interest, not to mention hours of your time.
1. Being unprepared
The paperwork required for a basic business loan is not overly demanding, however lenders do require a high degree of accuracy in order to process the loan accurately and make a decision as to whether it is viable. In short, you need to show the lender that you are creditworthy and will be able to repay the loan according to terms, and the more documents you have to prove it, the better.
As a minimum, you will need to show 2 years of income (business and personal tax returns), plus proof of identity and business registration papers. If you have other loans, you’ll also need to provide statements showing the balance and a history of good repayments.
For those who do not have access to the required paperwork, many lenders offer what is known as “low-doc loans”. This type of loan requires minimal verification, but comes at a cost. The interest rate for low doc loans can be a whole percentage point (or more!) higher than a standard business loan, so it’s always best to aim for regular loan approval where possible.
2. Choosing the wrong lender
Not every lender has the same set of requirements and products. Selecting the right lender who offers a product that aligns with your business goals is an important factor in financing your business. Whilst some lenders offer interest free periods and no setup fee deals, these savings are often offset by hidden costs.
At Lendfin, we have partnerships with over 20 different lenders, so we offer a huge range of choice. Our business lending specialists are sure to find a loan that will help work toward your business goals.
3. Taking out multiple loans
Some lenders will only be able to offer a capped amount depending on your income, expenses and business history. To overcome this, small businesses sometimes take out multiple loans across multiple lenders. Not only does this negatively affect your credit record, it is also far more expensive than having a single well-structured loan as you are subject to multiple fees and different interest rates. Furthermore, it increases teh administrative burden of loan repayments.
4. Paying more than necessary
Preparation is key to ensuring that you do not pay more than is absolutely necessary for your business loan. With more time, you are able to compare offers across multiple lenders and really get an idea of the loan structure that could benefit your business.
Fortunately, the business loan experts at Lendfin have years of experience with multiple lenders, so you can avoid the hassle of shopping around. Through long-standing relationships with the banks and smaller lenders, Lendfin are able to offer excellent rates on almost all business products in the market.
5. Missing payments
Before you take out a loan, the lender will assess your income and determine whether you can truly afford to repay it. However, it also requires due diligence on your part to make the repayments on time, every time. Missed instalments on business loans are often subject to a hefty fee, and a history of missed payments will affect your credit rating, making your next loan more expensive.
If you are looking for a business loan to suit your business goals and needs, contact the business lending experts at Lendfin to discuss finance options today.