Learn how to increase your chances of approval for small business loans by avoiding common mistakes such as choosing the wrong lender, rushing paperwork, and going through the process alone. Our guide provides tips on finding the right lender, preparing accurate and up-to-date paperwork, seeking support during the financing process, and successfully deploying the capital once approved.

Summary

• Small businesses need access to affordable capital for success, but the process of applying for a loan can be intimidating.
• 12% of businesses that required financing but did not apply for it, did so because they believed their application would be rejected.
• To increase their chances of obtaining funds, small business owners should avoid common mistakes when applying for a loan such as:
  • Choosing the wrong small-business lender
  • Rushing the paperwork
  • Going through the process alone
• To find the right lender, research the lending market and understand your business’s current situation thoroughly, and utilize resources such as experts from local community development financial institutions or the Small Business Borrowers’ Bill of Rights.
• It is essential to ensure that everything submitted as part of the application process is accurate and up-to-date.
• Financial professionals, accountants, attorneys, or the local Small Business Development Center (SBDC) can help during the financing process by preparing business finances and addressing questions or problems during the underwriting process.
• Once approved, the knowledge and strategies gained from financial professionals can be used to successfully deploy the capital and grow the small business.

Common Mistakes to Avoid When Applying for Capital for Your Small Business

Having access to affordable capital is crucial for the success of small businesses, yet the process of applying for a loan can be intimidating and approval is not guaranteed, even for those with strong credentials. As per the Federal Reserve’s 2021 Small Business Credit Survey, 12% of businesses that required financing but did not apply for it, did so because they believed their application would be rejected. However, with loan approval rates on the rise in early 2022, small business owners now have the chance to improve their application process and increase their chances of obtaining the funds they need.

Here are three common mistakes to avoid when applying for capital for your small business.

1. Finding the Right Lender

One common error business owners make when applying for a loan is choosing the wrong lender. Tony Giuliano, Vice President of Credit Policy and Underwriting at Accion Opportunity Fund, a nonprofit community development financial institution, emphasizes the importance of selecting the right lender to ensure that a small business has the best chance of getting approved for a loan. Going online and conducting a quick search is not always the most effective way to find a lender. Giuliano warns that this method may lead to high fees or rejection without much help or assistance. To avoid this, he recommends researching the lending market and understanding your business’s current situation thoroughly. Utilizing various resources such as experts from local community development financial institutions or the Small Business Borrowers’ Bill of Rights can help in understanding different products and programs, providing more options for a business owner.

MORE: How to Apply for a Small Business Loan: A Step-by-Step Guide

2. Preparing Accurate and Up-to-date Paperwork

Applying for a business loan requires various personal and business-related documents, but the specific information required can vary depending on the lender. David Tuyo, CEO of University Credit Union, warns that one of the biggest mistakes business owners makes is submitting incorrect or outdated information to the lender. It is essential to ensure that everything submitted as part of the application process is accurate and up-to-date. With the increasing use of automated underwriting, it is even more crucial to read and answer all application questions carefully. If applying online and the lender uses automated technology, incorrect or incomplete information can lead to automatic rejection, according to Giuliano. Being organized and having all necessary documents and financial information in one place, readily available and well-organized is important when navigating different lender requirements and managing multiple loan applications. Elizabeth Magennis, President of ConnectOne Bank recommends using basic financial software, such as QuickBooks, to help organize and quickly access financial information.

MORE: Business Loan Eligibility Requirements

3. Seeking Support During the Financing Process

Applying for a business loan, whether for the first time or not, can be challenging to manage while also running a small business. Magennis suggests that many business owners may not have the right support team to help them organize and guide them through the financing process. Instead of going back and forth with the lender to get the right documentation, business owners should reach out to financial professionals, accountants, attorneys, or the local Small Business Development Center (SBDC) for assistance. These resources can help prepare business finances, address questions or problems during the underwriting process and increase the chances of loan approval. Once approved, the knowledge and strategies gained from these resources can be used to successfully deploy the capital and grow the small business, according to Giuliano.

MORE: The Ultimate Business Plan Guide: A Step-by-Step Approach to Writing Your Business Plan

Conclusion

In conclusion, access to affordable capital is crucial for the success of small businesses, but the process of applying for a loan can be intimidating. To increase their chances of obtaining the funds they need, small business owners should avoid common mistakes such as choosing the wrong lender, rushing the paperwork, and going through the process alone. Instead, they should research the lending market, utilize resources such as experts from local community development financial institutions or the Small Business Borrowers’ Bill of Rights, and ensure that everything submitted as part of the application process is accurate and up-to-date. By seeking support from financial professionals, accountants, attorneys, or the local Small Business Development Center (SBDC), small business owners can navigate the financing process more efficient and increase their chances of loan approval. Once approved, they can use the knowledge and strategies gained from these resources to successfully deploy the capital and grow their business.

Questions Answered in this Article

1. What are some common mistakes to avoid when applying for capital for a small business?

• One common error is choosing the wrong lender, which can lead to high fees or rejection without much help or assistance.
• Another mistake is rushing the paperwork and submitting incorrect or outdated information to the lender.
• Going through the process alone without the right support team can also be challenging for small business owners.

2. How can small business owners find the right lender?

• Tony Giuliano, Vice President of Credit Policy and Underwriting at Accion Opportunity Fund, recommends researching the lending market and understanding your business’s current situation thoroughly. Utilizing various resources such as experts from local community development financial institutions or the Small Business Borrowers’ Bill of Rights can help in understanding different products and programs, providing more options for a business owner.

3. Why is it important to ensure that everything submitted as part of the application process is accurate and up-to-date?

• With the increasing use of automated underwriting, it is even more crucial to read and answer all application questions carefully. If applying online and the lender uses automated technology, incorrect or incomplete information can lead to automatic rejection.

4. How can small business owners get support during the financing process?

• Elizabeth Magennis, President of ConnectOne Bank suggests reaching out to financial professionals, accountants, attorneys, or the local Small Business Development Center (SBDC) for assistance. These resources can help prepare business finances, address questions or problems during the underwriting process and increase the chances of loan approval.

5. What are some strategies for using the capital once it is approved?

• Giuliano suggests that knowledge and strategies gained from financial professionals can be used to successfully deploy capital and grow a small business.