Small Business Loan Application Problems and Oversights to Avoid

Small business lending opportunities are reserved exclusively for companies that meet the Small Business Association’s criteria for specific programs. However, meeting core criteria is not going to ensure that you will get a favorable decision on a loan application. Many small business owners make mistakes or omissions in their applications that commonly lead to rejections. Here are a few prevalent pitfalls that you should take care to avoid.

Spotty Credit

In lenders’ estimation, a small business credit score is the most substantive metric to gauge creditworthiness. Even if there is a strong probability that your use of loan proceeds would yield a big boon of profits, a problematic credit history could automatically preclude consideration of your funding request.

Check out your business credit score before pursuing SBA loans. Take strategic measures to resolve issues that are dragging down your score such as overutilization of your available credit or delinquency status on an active tradeline.

Keep checking your credit regularly to find out about changes in your score as they occur. Bear in mind that a mistake on your score could prevent you from getting funding even if you can demonstrate that a negative remark is erroneous.

Nonspecific Funding Requests

A lending institution may be wary about working with you if you cannot provide a clear and cohesive explanation of what you need the money for. If your application indicates that you need money for operating expenses and you do not detail what those expenses are, a lender will have no way of knowing whether your planned use of a loan is going to help you generate more revenue.

Ask for a specific amount of funding. Avoid approximating expenses. Identify line-item expenses that you will put loan proceeds towards.

Recordkeeping Issues

When you submit applications for SBA loans, you need to prove your competence in financial management. You should have complete, accurate financial statements. Banks want to see that you are doing the right things to manage money, and they also need to ascertain where you are at with your net margin.

Disorganized accounting practices and recordkeeping that are inconsistent with the IRS’s regulations applicable to business entities will almost certainly lead to rejection. Get all of your financial records in order and be ready to produce any supporting documentation that you think a lender may request.

Ultimately, proactive preparation can improve your odds of getting your application approved. Do all your due diligence and organize your information in advance of applying for a loan to forge ahead with confidence.

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