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Six mistakes business owners make when taking out a business loan

A small business loan can be invaluable when you’re establishing your business or when an unforeseen setback occurs, but you don’t want a loan to be short-term gain and long-term pain.

Here are six common mistakes businesses should avoid when it comes to commercial finance.

Mistake #1: Not getting the right loan

A thriving business requires enough capital to meet expenses, expand and invest, but it’s important to know why you need the funds and what loan best suits that need.

Do you need to cover short-term cash flow shortages, for example? A line of credit could help, where you can access funds up to a pre-approved limit, and only pay interest on the outstanding balance.

Maybe you need new equipment? In this case, ask your mortgage broker about an equipment loan, where the asset is used as security while you make your repayments. This can potentially help make the loan easier to secure.

Mistake #2: Not having a business plan

Lenders want to understand your business’s operations and how it will make money – in other words, that your current and future cash flow will cover the repayments of the loan.

A strong, well-considered business plan demonstrates your goals and how you plan to reach them, and shows you’ve thought through all the details. When you can clearly explain your business model, products, services and target audience, lenders will be in a better position to tailor a financial product to your needs.

Mistake #3: Not having thorough, up-to-date financials

Precise, current financial records allow lenders to understand your business’s exact position. If you can’t provide sufficient information, they will either reject your application outright, or ask you to spend more time preparing the necessary details.

Before approaching a lender, get your books up to date and prepare reports such as balance sheets, profit and loss statements, recent business activity statements (BAS) and tax returns, cash flow projections, and debtor and creditor reports. Depending on the size of your business, you may also need to provide information on your personal financial status.

Mistake #4: Not paying attention to interest, fees and hidden expenses

It’s crucial to understand and calculate the full cost of a loan before committing to it. Apart from interest expenses, there are likely to be application fees, administration fees and contract or appraisal costs. These will be incurred regardless of the size of the loan, so you might find it worthwhile to discuss increasing your borrowing amount with your broker to cover those costs.

Mistake #5: Not checking your credit record

Is your credit record clean? You should find out, because lenders are certain to check it when assessing your application. This can have a big impact on the interest rate you’re offered.

Ask for a copy of your credit file from a reputable credit reporting body and go through it carefully to make sure all the information is accurate. If it’s not, take steps to correct it before starting the loan application process.

Mistake #6: Not shopping around

Having the funds to run and grow your business is important, but make sure you take the time to shop around for a loan that won’t create extra pressure in the long run.

A mortgage broker can help you find the right loan and secure the commercial finance that’s most suitable for your business. It will also ensure you avoid making these six common mistakes.

 

This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.

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The staff at MAKE Finance Group are experienced and dedicated to providing our clients with exceptional levels of advice and service.

As a full service finance broker, we can save you time and stress as we negotiate with Banks and Financiers on your behalf. Whether it is asset or equipment finance, business finance and advice or even a home loan, we will go to the market on your behalf and find the best possible deal available.

Let us worry about the financials, as we make it happen for you.

Why Partner with Us?

The staff at MAKE Finance Group are experienced and dedicated to providing our clients with exceptional levels of advice and service.

MAKE Finance Group holds sought after commercial lending accreditations and access to a substantial panel of lenders for both Equipment and Business Finance.

As a finance broker MAKE Finance Group saves you time and stress as we negotiate with Banks and Financiers on your behalf. This allows you to keep focused on your business while we do the finance work.

This ensures you receive the best offers with the objective of saving money and increasing profitability.

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  • Geoff at MAKE Finance Group made the process of purchasing an investment property a seamless process. Thanks for your patience Geoff. I would highly recommend Geoff and his team at MAKE for all your finance needs. Cathy, Warrnambool

  • Geoff and the team at MAKE Finance were unbelievably helpful when we needed to refinance our business loan. After a stressful and confusing ordeal with our existing lender, Geoff made re-financing so easy, and it tool very little work from our end to sort everything out. We are so happy with everything sorted and not having to worry about our finance arrangements. We would encourage anyone with any financing needs to go and see Geoff and the team at MAKE Finance, thanks Geoff! Philip and Jenni, Holbrook

  • Thank you to the team at MAKE Finance Group, for helping me purchase my first truck. I cannot thank them enough as they went above and beyond all my expectations and made the whole process easy and stress free, I would highly recommend them to anyone. Rob, Canberra

  • Applying for a business loan (direct through a Bank) was becoming a stressful and difficult task for us as everything had to be discussed over the phone followed by numerous paperwork. Geoff at MAKE Finance Group was our savior. Your personalised service made the application for our business loan & business vehicle loan so easy. We now operate a very successful business & we could not have done this without you. We love your work! Lloyd & Kristy Franchisee of Jim’s Mowing Wodonga East

  • “MAKE Finance Group were an absolute pleasure to deal with. Right from the very beginning, even when we were just asking questions as to how home loans work and how much we could afford, they made the process incredibly easy and put everything into terms that we could understand. There’s a lot involved with buying your first home, but it felt effortless with the superb help from both Jess & Geoff. MAKE Finance Group definitely come highly recommend from us – thanks guys!” Sophie & Zach, Albury

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