You have found the perfect business idea, you have found the perfect place where the business will stand, however, there is one thing that remains and that is the finance for the actual building. The next logical step is to apply for a loan that will allow you to build on the property that you already have or will purchase.
It is not every day that one takes a loan, hence there are bound to be some mistakes when someone does apply for a loan. To save you the trouble arising from making mistakes, listed here are some of the most common things that people overlook when applying for a loan, so that you can be careful of the same:
- Explanation of loan
The “what”, “why”, and “how” of the loan needs to be conveyed to the lender clearly. When applying for a construction loan for commercial property, state why you need the money, how you will be using the money to meet your business demands. In this context, mention if the money will be used to buy construction material, pay for labour, pay for utilities, etc.
- Details of the business plan
An extension of the above point, you need to be able to explain the lender how your business intends to earn profits. If possible, include the relevant financial information when you present your business model to the lender. Include charts and graphs if you have to, as convincing the lender of your business ability to repay the loan is of paramount importance.
- Knowledge of credit rating
Get a hold of your credit score from the appropriate authorities. This will help you gauge where you stand in terms of credibility and how likely you are to get your loan approved.
- Reading the terms of the loan
Yes, you may be thrilled with the thought of getting the loan. However, as a precautionary measure it is wise to read the terms and conditions of the loan carefully before signing the dotted line as you may regret not doing so later. It is advisable to ask questions and clarify any doubts that you may have about the various terms, with the financial institution itself.
- Keeping the company structure stable
The lender will have more faith in your ability to repay the loan amount if they see stability in your company. Avoid making huge changes such as restructuring the whole company, hiring or firing a substantial number of personnel, etc. Stability instils confidence in the lender, so try to keep the business stable.
- Equity in the business
Unless you are financially invested in the project yourself, the lender or financial institution will not have the confidence in investing in you. Since you have already put a down payment (or other equity) into your business, the lender is convinced that you are serious about the business plan.
Be it a small enterprise or a huge one, these are some of the common oversights that many first-time loan takers commit. Be careful, and see your dreams take flight!