Top 7 Mistakes MSME Should Avoid While Taking Business Loan

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Compared to a personal loan or a home loan, obtaining approval on a business loan application requires more effort. The number of company loan applications that are refused far outnumber those accepted. To make things convenient for you, we’ve put together a list of 7 business loan mistakes to avoid if you want to increase your chances of securing a loan. 

  1. Lacking a business strategy

A business plan is necessary to persuade the bank of one’s ability to run the company. The business plan should include thorough information on the company’s type of business, the products it sells, marketing tactics, funding requirements, and the loan’s purpose. The business plan should also include the loan amount, how the money will be used, and the strategy for generating additional income with the investment. Based on a business plan, lenders will be assured of the applicant’s commitment to working toward the development of the company.

2. Not determining your credit score.

Personal finance management is just as vital as business finance management. Before visiting the bank, one should be aware of one’s personal credit history and understand the cause and correct it if there is a problem. How would the bank be convinced that the loan supplied will be used for business expansion if one is unable to handle personal finances? Financial discipline is a critical aspect in determining one’s business success.

3. Not being organized

More than two-thirds of all company financing applications are turned down. Why? One of the most common reasons a bank rejects a business owner’s loan application is that the financial data provided is inaccurate. If you lie about your credit score, you’ll get a reduced loan amount—if the lender grants you any money.

A loan application should be used to demonstrate a company’s ability to pay back the debt on schedule. Include papers such as tax returns, bank statements, a summary of your investments and assets, and income estimates for your business to demonstrate that you’re financially stable and capable of making those monthly payments. Banks and lenders will be hesitant to work with you if you don’t have such proof.

4. Applying for multiple loans at the same time

Some business loan applicants make the mistake of applying for many loans at once. They believe that submitting many applications will increase their chances of receiving at least one loan. Applying for many business loans has a negative impact on your credit score. Lenders read this type of conduct as credit-hungry behavior, and your credit score suffers as a result. Business loans are quite convenient because of their simple eligibility and documentation requirements.

5. Waiting until the last possible moment

Some business loan borrowers have been shown to seek a business loan when they feel their company can no longer operate without rapid financial assistance. It’s dangerous to apply for a company loan after hitting the limit. It takes at least a month to receive a new business loan because you have to choose the correct lender, prepare the documentation, apply for the loan, etc. Taking the time required for the business loan process into account, one should begin looking for a business loan as soon as possible.

6. Failure to keep track of business finances

Before applying for a company loan, make certain that your financial records are in order. Lenders require corporate financial statements for the prior two years. The lender may believe you can’t maintain track of your profit and loss statement if your business account isn’t updated.

To determine your worth, banks want to know how you fared in prior years. It will give the impression that you are financially disciplined if you can demonstrate that your accounts are cleared at the end of each financial year. As a result, the likelihood of approval rises. Lenders will only give you a business loan if they believe you have a better chance of succeeding. Lenders will only provide you with a business loan if they believe there is a low risk in investing in your company.

7.  Signing a contract without carefully reading it

The business loan document is a booklet with a lot of jargon. Many times, understanding all of those technical words gets challenging. Because of all of these factors, it has been discovered that most loan applicants sign documents without completely reading them. This is one of the most common business loan blunders.

Signing a loan agreement without understanding the details could lead to a slew of problems in the future. If you don’t understand the terms and circumstances, you should seek the advice of a skilled lawyer who can help you grasp the terms of a business loan.


The right business loan, together with the most effective use of the loan amount, can help your company grow. However, before applying for a business loan, be sure you’ve adequately prepared. Along with all of that planning, make sure you avoid the aforementioned business loan blunders.