Earlier we brought you part one of our three-part series on how to secure a loan for your small business (an article you can read here), and now it’s on to part two, where we’ll cover all the things you shouldn’t do when approaching a lender.

Want to secure a loan for your small business first try, making yourself seem as attractive as possible to a bank? Here are five mistakes to avoid…

1) Don’t Come Unprepared

The worst thing you can do is sit down with a banker having no idea what you need, how much, how you’ll use the money, and missing the supporting documents. Not only does this instantly show you don’t take things seriously, but loan types and business plans aside, banks can’t just take your word for it when you say your business is in good shape, so come prepared.

Before approaching a lender, invest in good bookkeeping, and ensure your records are accurate and in order. Then, when preparing to sit down with a banker, bring your current financial records with you, along with any other supporting documents such as tax returns.

2) Don’t Wait Till You’re Desperate

It may seem counterintuitive, but the worst time to apply for a loan is when you most need it. Banks see desperation for money as a huge warning sign of a failing business, and nobody wants to invest in something that’s not going to earn a return.

So, plan ahead! Look to the future and predict when you’ll need the money, then approach your lender long before then, during a month of strong cash-flow, when your current financial records show a good profit. Similarly, don’t put yourself in any personal debt, as banks see business and personal accounts as one and the same.

Not only will your loan more likely be accepted if you plan ahead, but you can prevent financial disaster should something fall through or a loan take too long to arrive.

3) Don’t Be Without a Plan

Bottom line: if you ask anyone for money, they’re going to want to know what it’s for – banks being no exception. Before approving a loan, not only do lenders want to know it’s going to a good use, but more importantly, that the borrower takes things seriously enough to make a plan.

So, go into depth on how the money will help you expand your business, grow your clientele, refinance, or expand your assets. Plan ahead, chart the logistics, and stress the finer points. Forward thinking is a very attractive trait to a banker.

4) Don’t Wing Repayment

Banks don’t give out loans from the kindness of their heart – they’re looking for a return. So, if a lender asks you how you plan to repay them… Make sure you have an answer.

Come prepared with long-term cash-flow projections, financial statements, and accurate budget reports that detail exactly how you’ll not only pay back every penny (plus interest!), but in a timely manner too.

5) Don’t Forget to Do Your Research

A loan is a big step no matter how you look at it, so make sure it will help your business rather than hurt it in the big picture.

Before approaching a lender, take a look at your profit levels, inventory, expenses, and credit lines, and consider whether a long-term or short-term loan would better suit your needs. Will the loan last as long as the asset you’re financing? Can you work with the expenses it might incur? A safe bet is usually to ask for more money than you think you’ll need.

Loans can be game changers to a business, helping it grow and increase its profits, but if you’re not careful, loans can also be another money-trap through your business, collateral asset, and legal troubles.

Don’t get blindsided with interest rates or rejection letters, and do your homework.

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