Common mistakes on loan applications

There are steps you can take to maximise the success of the business proposal you are presenting to the bank.


Don’t ask for more than you need

Banks use a variety of formulas to work out how much they think you can afford to borrow. So it makes sense that you do not ask for more than you need to borrow. It is also important not to underestimate what you need. If you do underestimate, you may need to go back to the bank to ask for more money.


Don’t rush it

Each bank will have different loan approval processes. Provide all the information the bank needs upfront so they have a good understanding of why you need the loan.

The first bank officer or loan specialist you talk to may not be the person who makes the final decision on your loan. It depends on the size of the loan you want, the size of the bank and the systems the bank has in place for loan approvals.

You are certainly entitled to ask how long the process might take, but avoid placing any pressure on the bank to respond as this will not hasten the process.


Other common mistakes

Common mistakes in the application process include:

  • Thinking that business turnover is the same as cash received from customers. Banks look at net profits and cashflows.
  • Not providing information about the directors of the small business. Banks will assess directors and may ask for guarantees from directors, depending on the individual circumstances of the business.
  • Providing security that is in excess to loan value – this leaves less room to provide security on other loans if required.
  • Not including loan amounts to other financiers.
  • Including details of loan repayments and not factoring these into cashflow forecasts.
  • Inflating the value of business assets. Bank valuations assess standard market value for a quick sale. Therefore, many small businesses unintentionally overstate the true market value of their assets.
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