A large number of regular workers around the world tend to have just one significant source of monthly income. Sadly, the money they earn is often not enough to take care of their basic needs until the next salary comes. This explains why lots of people resort to personal loans to save the day. Even entrepreneurs typically depend largely on loans to finance their businesses, and they usually have experience of applying for a loan.
So yes, loans can sometimes become inevitable. Although applying for a loan can sometimes be essential, getting it actually depends on how prepared you are to avoid certain catastrophic mistakes. I say “catastrophic” because these mistakes can really hamper your chances of getting a loan offer. Therefore, you need to avoid mistakes by all means. That is why you should read this article to the very last word. That said, below are the top ten mistakes to avoid whenever you have the need to apply for personal loans or loans to fund your business.
1. A messy credit history
Let’s be clear, no bank will lend you any money if your credit history is nothing to write home about. A borrower’s credit history is one of the factors that determine whether they eventually get a loan offer or not. This is because banks need to be assured of your ability to pay back the money as at when due. Therefore, if you do not have a responsible loan repayment track record, you will definitely find it difficult accessing new loans.
2. Not knowing the right type of loan to apply for
Some loan seekers are just in a rush to access funding and as such, do not bother to fully understand the type of loan that is best suited for them. Unfortunately, applying for the wrong type of loan will work against your chances of eventually getting one. To explain this, let’s assume that Ade is a small business owner who urgently needs about ₦5, 000 to finance her business. If she goes ahead to fill out the forms for a short-term personal loan her loan request will most likely get rejected. This is why you should read the fine print in order to be fully aware of the type of loan you need and how to get it.
3. Forgetting to seek an expert opinion
Some of the mistakes loan seekers make are such that could easily be avoided if only they had bothered to consult a professional. Moreover, your potential lenders are interested in knowing whether you have consulted an expert who can give you the necessary advice. For instance, an expert can help you to better understand the type of loan you should be applying as well as the loan terms. Unfortunately, when you fail to consult them, you go about your loan search blindly which leads to failure.
4. Having a poorly-conceived business plan
Before a lender can approve your loan application for your business, they must be convinced that such a business is viable enough to guarantee returns on investments. This is important to them because no lender can afford to accumulate bad loans. Therefore, when your business plan is not viable and convincing enough, there is no way you are getting the funding that you need.
5. Not being tenacious enough
Now, it is important to note that some people have lost the opportunity to pursue their business dreams just because their first loan application got rejected. Although lenders have ways of discerning a viable business plan, some of them do make the mistake of refusing to fund certain businesses just because they don’t believe in such. This should never make you give up. Instead, it should spur you to seek out other lenders until you get the right one that believes in your dream.
6. Seeking for a loan without collateral
Lenders are in the business to make money. This is why they ask for collateral which enables them to give out secured loans. The importance of this is so that if anything happens and you are unable to repay the loan, they will have something to fall back on instead of losing out completely. A loan without collateral is also possible, but the interest rate charged by the lender is usually noticeably higher than a loan with collateral.
7. Failing to establish relationships
It is always advisable to build cordial relationships with bankers even long before thinking of applying for loans. After all, you never can tell when you might just need their help. Now let’s be clear, needing their help doesn’t necessarily mean that they will fast-track your loan application process. It may just mean that they will help you with the necessary advice you will need to make your loan application a success.
8. Not having enough cash flow
Lenders have a way to gauging the inflow of cash into your bank account. And they do this as part of the need to be sure that you are deserving of the kind of loan you seek. Therefore, if you have limited cash flow, your chances of getting a loan offer reduces.
9. Failing to prepare for the loan application
Believe it or not, some people sometimes submit their loan applications without bothering to supply the necessary documents that should come with such applications. Avoid making this mistake and all the other ones highlighted above if you wish to access loans without glitches.