When you decide to start a business of your own, it’s obvious from day one that it isn’t going to be an easy job. There are so many challenges that you need to face, but one of the biggest is coming up with the money necessary to get your business off the ground.
Most entrepreneurs finance their startup themselves, but if that isn’t possible for you, then you might start to look at a startup loan. Unfortunately, many business loan applications are rejected, so if you want yours to be successful, then avoid making the mistakes below.
1. You don’t have customers
Very few lenders are going to give you money based solely on an idea. They’ll need to see that you have customers and a good cash flow, to provide assurance that you can pay the money back. Some companies and banks specialise in startups and understand that you’re not going to be huge right now, but even they will expect some proof of your business’s potential.
2. Your industry is risky
There are some industries that lenders deem to be a risk, and as such are reluctant to lend to businesses that operate within these industries. A few examples of such industries include retail, alcohol, and food. If your business falls into one of these riskier industries, then you might want to consider alternative funding.
3. You’re oblivious to the risks
The one thing that’s worse for loan applications than operating within a risky industry is being oblivious to the risks. Lenders don’t want to hear that your business has no risks and no weaknesses, as this makes you appear naive. Instead, they want to know how you’re going to deal with risks when they pop up.
4. Little business experience
If you’re new to the business, make sure that you focus your attention on startup business loans, rather than other loan options. Most lenders will only accept applications from people with a lot of experience in business, but loans specialised to new businesses and entrepreneurs will understand that you don’t have this, and won’t hold it against you.
5. Poor credit score
A business loan is like any other loan; You are more likely to be approved if you have a good credit score. Of course, there are going to be some companies out there that will accept your application regardless of your credit, but if you want the best deal and interest rate that you can get, then make sure you take steps to improve your credit score first. Sometimes you might need a bit of time to get through your debts to improve your credit score. You can do this using an IVA. You might ask what IVA stands for, it is Individual Voluntary Arrangement and it is a good way to manage your debts and improve your credit rating.
6. No business plan
Some people think that they can just wing their business and get by fine without a business plan, but this is rarely true, especially when you’re borrowing money to fund it. Lenders want to know where you see your business in six months time or even six years. If you can’t give them this information, they’re unlikely to trust you with their money.
Before you start making loan applications to fund your startup, figure out why you might not be approved, and fix the problem before it becomes one.