5 Lending Request Errors That Businesses Must Avoid

Averting business risk is a principal objective of any enterprise and that goal applies to the loan-seeking phase as much as any other. Here are five mistakes when making a lending request that you should stay away from during this critical stage.

1. Underestimating Needs

Many startup creators assume they are more likely to secure funding if they ask for smaller amounts. This tactic actually works to your disadvantage in two ways. The first is that banks may recognize your miscalculation and deny you on that basis. The other is that you are likely to receive funding but fall short of your financial needs. Returning to lenders with an additional request places you in an awkward and unfavorable position.

2. Sacrificing Too Much Control

Many venture capitalists want a stake in your company in exchange for cash. Although asking for a piece of business equity is a standard request, watch out for relinquishing so much power that your company becomes someone else’s. Know how much you are willing to give up before negotiations begin unless you are okay with becoming a minority stakeholder in the company you created.

3. Relying Upon Credit Cards

Many young businesspeople depend on credit cards to get them through tough spots. Their speed and easy approval process can make this path irresistible. However, plastic’s high-interest rates are prone to rapid accumulation, leading to compounded debt that cannot be easily escaped. Make certain that any credit card deficits you incur are easily paid off.

4. Getting Scammed

Now more than ever, there are hordes of fly-by-night lenders that exist for no reason other than to take your money. They simply absorb upfront processing fees and then go silent. Scammers are increasingly sophisticated and can be impossible to distinguish from legitimate financial organizations. Before getting involved with an offbeat lender, obtain a second opinion to verify that you are not falling for a trap.

5. Lacking a Business Plan

Because bankers want to know your venture stands a decent chance of turning a profit, loan approvals require an intense interview process. Come prepared with a detailed overview of your ambitions. Include a cash flow analysis, data regarding target customers and a fleshed-out marketing campaign. The more information you include, the more likely your request will receive a green light.

Avoiding business risk is a basic concern for any company and seeking funds is fraught with pitfalls. As you pursue money for growing your startup, steer clear of these common miscalculations.