The 6 Common Short-Term Business Loan Mistakes to Avoid
Many businesses could use a short-term loan at some point. However, not every such loan or lender is equally good, and it’s essential to have the right approach towards getting one.
No matter the kind of business that you own, there’s a chance that there will come a time when you need some additional short-term financing. When this happens, you’ll see that there’s a huge number of options at your disposal.
Not every short-term loan will fit your needs. Each type of them is tailored towards specific business requirements. Moreover, you won’t be able to access every option since lenders impose all kinds of requirements that business owners have to meet.
Thankfully, short-term loans aren’t that hard to get. The criteria that businesses need to meet aren’t that high, which means that they’re often accessible to most businesses. Still, this doesn’t mean that you can just waltz in and get the money you need.
There are many aspects of financing your ventures with a short-term loan that you need to understand. Applying for such a loan without enough knowledge can result in some serious troubles.
To make sure this doesn’t happen, you need to learn how to avoid the mistakes that many businessmen make when applying for a short-term loan. Here are some of the most common ones:
Lack of Preparation
Even though getting a short-term loan shouldn’t be a tough process, there are many things that you need to prepare for. The first is to make sure that you’re eligible for the loan. Once you verify that, there are all kinds of paperwork you need to gather for your application. If you fail to provide all the required information, chances are the lender will reject your loan.
For this reason, you should never rush into this process. However, there are situations where you need the money as soon as possible. Max Funding encountered this situation with one client. They needed $885,000, and they only had a couple of days to find the money.
In this situation, the client would normally have a very hard time getting the funds that they need. But Max Funding isn’t just any lender. Short-term loans are one of the company’s specialties. In just 48 hours, Max Funding managed to release the equity from the client’s commercial properties and deliver the money.
You should know that not every lender is capable of such fast approval, especially not for such a large amount. Many of them scrutinise every detail of your company before making a final decision. This is why you need to be proactive and plan everything ahead.
Choosing the Wrong Lender
As mentioned, every lender has their own set of requirements and capabilities. This means that you should do quite a bit of research until you find the one that fits your business needs. If you fail to do this, you might not be able to negotiate the terms that you’re comfortable with. Worse yet, you might end up not getting the money you need.
From traditional lenders such as banks to modern solutions like crowdfunding, you have a ton of options to choose from. Make sure to find the one that that fits your financial goals. This means going with the lender that has the specific financing type to let you accomplish your goal without undue burden in terms or repayment.
Not Paying Attention to Your Credit Score
Your credit rating is among the first parameters that lenders will take a look at. Defaulting on payments can do a lot of damage to your credit score, so you need to make sure to meet your obligations on time. Some lenders won’t give you the funds no matter how small the defaults are.
This is exactly what happened to one of Max Funding’s clients. They needed extra funds to finance their business expansion. The amount required for the purchase of the right machinery was $185,000.
Due to the fluctuations in their business, as well as a stained credit history, the client had issues with securing the funds. Lenders big and small turned them away.
However, Max Funding has an easier approval process for short-term loans. The company was able to approve the loan and transfer the money to the client in three business days.
Not Repaying the Loan in Time
Short-term loans are self-explanatory. You need to make sure to pay the loan back as soon as possible. However, some businesses fail to meet the repayment schedule, which can lead to many issues.
If you don’t repay the loan in a timely manner, you’re likely to incur huge additional costs. Short-term loans often carry higher interest rates. This means that the longer you’re in debt, the more money you’ll have to give back.
Sometimes, this amount can be big enough to disrupt your business’ operations. This can lead to further losses and might take a long time to recover, so make sure to avoid this situation.
Taking out Multiple Loans
In some cases, the amount that a lender can give you won’t be enough to cover all your expenses. There are multiple reasons why a lender would put a cap on your loan.
When this happens, the first logical thing to do would be to take out another one. However, this isn’t advisable. The main reason for this is that you might not be able to balance more than one loan. If your business runs into unexpected problems that necessitate short-term funding, there’s a high chance that you will have trouble paying back multiple short-term loans.
One of Max Funding’s clients was in a similar situation. They wanted to consolidate all their loans to lower their monthly repayments and buy more time for servicing the loans.
However, their current lender wouldn’t proceed and threatened legal action unless the company agreed to pay $120,000. This was when they turned to Max Funding, which was able to get them even more than they needed. They provided them with $145,000, which was enough to consolidate their loans and ensure some extra funding for the company’s day-to-day operations.
Paying More Than You Have To
Even though traditional loans from a bank might still be the best option for many, the whole process can be dreadful. There are all kinds of paperwork to go over, and it usually takes a long time before you get the money.
When this happens, going to a different lender might seem very tempting. This is especially true when you need the money as soon as possible. However, this is never a good idea since there’s a high chance that you’ll have to pay a lot for your impatience.
Banks still offer the most affordable loans. If you need the money quickly, fintech lenders might seem more appealing. Unfortunately, this comes at the price of higher interest rate.
This means that you’ll not only pay more but might also have to settle for terms that don’t fit your situation.
This is why it’s important to not wait until the last minute to get a loan. You would be in a very unfavourable position that puts you at a disadvantage. To avoid this, always explore all the options and go with the most cost-effective one.
The Final Word
As you can see, there are many things that you need to take into account before you apply for a short-term loan. Not doing your homework might result in loans that don’t match your needs or insufficient funds.
Max Funding strives towards ensuring that every business gets the funds they need for their ventures. This is why we offer loans to a variety of businesses at convenient terms that can fit virtually every company’s situation.
We won’t charge you for applying for a loan, and you won’t face any hidden fees. With an interest rate of 1.80%, you can rest assured that repayment won’t burden your budget. You can get up to $1,000,000 at a repayment period of 1-36 months.
If your credit score isn’t the highest, don’t worry, as we want to give every business a second chance. As long as you’re not bankrupt and your credit score is not under part 9, you’re eligible for a short-term loan with Max Funding.
We also provide many other convenient solutions that will give your business a boost. If you want to know more, feel free to visit our website.