Access to affordable capital is essential to running a small business. However, the process of apply for a business loan can be daunting – and approval isn’t a sure thing, even if you have good credentials.
According to the Federal Reserve’s 2021 Small Business Credit Survey, 12% of businesses that needed financing but chose not to apply did so because they thought they would be turned down. .
However, with loan approval rates slowly increasing in early 2022, business owners have the opportunity to refine the application process and improve their chances of securing the funds they need.
Here are three common mistakes to avoid when applying for capital for your small business.
1. Choosing the wrong small business lender
Before you begin the application process, one of the first mistakes you can make is picking the wrong lender.
It’s important to make sure a business owner is looking in the right place, says Tony Giuliano, vice president of credit policy and underwriting at Accion Opportunity Fund, a nonprofit community development finance institution. based in California.
Going online and doing a quick search may not be the best way to find a small business lender. “In some of these cases, you might find someone charging exorbitant fees or you might just be a number, and if your credit score isn’t good enough, you’ll just be rejected without much help or advice. ‘support,’ he said.
Giuliano recommends doing in-depth research to understand the lending market, as well as your current business situation. He says that by using multiple resources – such as experts from your local community development financial institution or the Small Business Borrowers Bill of Rights — can help you better understand the different products and programs and hopefully provide you with more available options.
Also see: 6 tips for marketing your small business on Instagram
2. Rushing over paperwork
Applying for a business loan involves a variety of personal and business documents, but the specific information you’ll need to provide can vary widely from lender to lender.
“Perhaps the biggest mistake business owners can avoid is submitting incorrect or outdated items to the lender,” David Tuyo said in an email. Tuyo, CEO of University Credit Union, which serves employees, students and alumni of several California universities, added, “Borrowers should ensure that everything they submit through the application process is fully accurate and timely.
And with the adoption of automated underwriting, it is even more essential that you carefully read and answer all application questions. If you apply online and the lender uses automated technology, Giuliano says, and you enter the wrong information — or don’t answer the question as expected — it could result in an automatic rejection.
Being organized is key to navigating different lender requirements and processing multiple loan applications. Therefore, you should have all your documents and financial information in one place, orderly and readily available, says Elizabeth Magennis, president of ConnectOne Bank, a regional bank with offices in New York and New Jersey.
Magennis recommends using basic financial software, such as QuickBooks, to simplify organization and quickly pull out your financial numbers.
Don’t miss: How a 141-year-old Ohio moving company became America’s oldest black-owned business
3. Go through the process alone
Whether you’re trying to get a business loan for the first time or have already gone through the application process, dealing with all the moving parts can be overwhelming, especially while still running your small business.
“I think most of the time business owners don’t have the right team of advisors to help them get organized and guide them through the funding process,” Magennis says. “Across the board, I’ve seen business owners go back and forth with their lender trying to get the right documentation, when they should be contacting their accountant, their lawyer, or the small business development center. local businesses for help,” she said.
finance professionals, SBDC or other local business organizations can help you prepare your business finances, work with you to answer any questions or issues during the underwriting process, and hopefully improve your chances of loan approval.
Also on MarketWatch: As the feds gave students pandemic debt relief, some universities sued them
And once you’ve been approved, you can use the knowledge and strategies you’ve gained from these resources, Giuliano says, to set yourself up for success in successfully deploying your capital and growing your small business.
More from NerdWallet
Randa Kriss writes for NerdWallet. Email: [email protected]