7 Business Loan Mistakes You Must Avoid

Business Loan

Taking a loan is a crucial decision for every business. A business can utilize the funds obtained from a loan for many purposes such as restocking inventory, purchasing machinery and improving its infrastructure facilities, etc.

There are many lenders available in the market like Banks, NBFCs and other financial institutions which offer fast short-term business loans for ventures. Each loan is different in terms of tenure and eligibility criteria. So, while applying for one, a business must try to avoid the following mistakes:

  • Making delay in bill payments:

Every lender takes note of a borrower’s repayment ability. Something, which is extremely necessary at the time of loan approval. If a business pays off its invoices, business credit card bills and utilities on time then it increases its chances of getting a small business loan. This is because timely payments will strengthen a venture’s repayment ability. Timely payments also help a business to maintain a good credit score.

  • Choosing wrong lender:

There are several borrowing options available in the market like Banks, NBFCs and Digital loan providers. A business must take time to assess the loan options provided by different lenders. As rushing into a financial decision will have long-term consequences. If the business is eligible for a loan from multiple lenders, then a careful comparison should be done to identify the loan offer with most benefits (i.e. easy repayment facility and zero collateral).

  • Lack of business planning:

Lenders evaluate a venture’s stability before extending any kind of loan. Apart from profitability the lender also looks for future growth prospects of the business. At the time of loan application businesses are required to present a formal business plan. The business plan includes data and information about the earnings, expenses and growth prospects of the venture. Thus, submitting a well-detailed business plan accelerates the loan approval process and also makes future borrowing easier.

  • Choosing wrong asset as Collateral:

Many start-ups and small businesses face the problem of getting funds from lenders. This is because they don’t have a history of transactions. So lenders ask them to provide an asset as collateral against the loan amount. Before seeking a loan, it is important for a business to recognize which asset it will use as collateral. Doing so will accelerate loan processing and also increase possibilities of getting future credit.

  • Opting for the wrong loan type:

Businesses should avoid taking a wrong type of loan for their business. Different loans have a different purpose. For example, a business may require a loan to purchase a commercial property, so taking a small business loan with a 12-month repayment term would not be a good option. But on the other hand, long-term loans can be utilized to pay off short-term liabilities/expenses like restocking inventory, paying wages to employees and machinery/ equipment repair. That’s why businesses should opt for the type of loan that meets their requirements.

  • Waiting until funds reach rock bottom:

Before granting any kind of loan to a business, the lender assesses the financial position of the business. If a business does not have good cash flow and maintains inadequate bank balance, the lender will consider it a weak entity. Lenders will not have faith in the business to repay the loan, and this will increase the chances of loan rejection. Thus, it is important for a business to manage and keep track of its finances by making use of financial tools for cost control.

  • Multiple loan applications:

There are multiple loan options available in the market, and each lender (i.e. Banks. NBFC’s, financial institutions, and digital loan providers) offers different loans with different terms & conditions. A business must carefully evaluate each offering and try to avoid multiple loan applications. Whenever a loan application is placed, it reflects in the credit report of the borrower and can directly affect the credit score. So, the best way to ease loan approval is to apply for fewer loan options while maintaining a good credit score.


Small business loans provide funds which business requires to overcome its financial hardships. But while looking for a loan, it’s important that businesses research their funding options and chalk out the right loan application. Something which requires a lot of time and effort. If the loan application is approved by multiple lenders, then choose the right one, but make sure you avoid the pitfalls mentioned above.

If you are looking for fast short term business loan, we suggest you to have a look at FinTech firms like Indifi. They have a digital portal through which borrowers can apply for a loan and upload the documents at the convenience of their home or office. The time for processing and approval is also shorter in comparison to traditional lenders like banks and NBFCs. Additionally, Indifi maintains complete transparency in relation to loan terms and processing fees. The borrower only has to pay 2% processing fees during the entire period of the loan.

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