These days, many small business owners likely wonder about how they'll be able to secure financing when they need it, because this is often the lifeblood of any successful independent enterprise. However, experts within the credit industry now say that when owners seek small business loans, they may make a number of mistakes that can endanger their abilities to obtain approval.
In many cases, when small business owners attempt to apply for a loan from a major lender, they have not made the necessary efforts to get their finances under control ahead of time, according to a report from The Associated Press. Not taking the simple steps to make sure all aspects of a company's finances are in place, or not ensuring that they'll have the credit score necessary to obtain this type of financing is, simply put, the largest reason that many small business owners who may be rejected for this type of financing.
One of the largest reasons for this fact, though, is that many companies have credit reports on them – typically the result of financing they have previously obtained – without even knowing about it, the report said. While these initial loans were typically gained using the owners' personal credit standings, rather than that of the businesses, the fact that they were obtained necessarily means that they now have credit standings of their own. Thus, when a rejection comes, it might be as a result of a company's individual credit standing lagging somewhat. Moreover, owners who don't know their companies have their own credit may be viewed as less trustworthy by lenders simply because they might appear to have not taken basic steps to understand their companies' needs.
"We talk to over 20,000 businesses a week and a huge percentage of them don't even know they have a business credit file," Jeff Stibel, chief executive officer of the business credit reporting company Dun and Bradstreet, told the news agency. "They think that all they have is a personal credit file. … [Banks will] say to a business owner, 'I'm trying to believe that I can trust you to pay your bills and that I can entrust money to you and you'll be a good corporate steward and pay me back – but if you don't know what your credit profile looks like, then how on earth can I lend you money?'"
Many may not understand how application processes work
Of course, not knowing about credit standing is one thing, but many owners may enter into the application process for the first time not knowing much about how it works, the report said. Many may not even prepare proposals for lenders to examine. These are intended to show those extending the requested financing exactly how much money they want and what it will be used for, as well as projections for how it will help and when the funds in question can be expected to be paid back.
It might also be wise for owners to look into the kinds of loan options they may be able to get from a number of different lenders, both big and small, the report said. They might find that some institutions are more likely to lend to companies in their field than others, which can certainly save time and help avoid rejections.
Owners might also want to evaluate their costs for various small business insurance policies they may currently have, as it may be possible to cut down on those premiums to free up extra cash every month. Taking into account workers' compensation or liability insurance bills, for example, may help them find more affordable options.