Top 5

on Business Loans

How to Avoid Them

Not every great idea materializes into a bankable business venture. Why? It's often because the enthusiastic entrepreneur or business owner was ill prepared to competently justify the need for financing. It takes more than excitement to convince a lender to invest in your business idea. Here's how to avoid making 5 of the most common mistakes when applying for a business loan.

1. Not Being Realistic

Don't let your emotions get in the way of the rational. Temper your excitement and keep your expectations realistic. Lenders who have reviewed numerous financials can easily detect when you are over-projecting sales and revenue forecasts and underestimating likely expenses. Not only are you being deceitful in the application you are setting yourself up for disappointment and possibly even failure.

2. Lack of Equity or Collateral

Are you willing to invest your own hard-earned dollars in your business idea? Do you have enough personal cash on hand to do so? Investing your own cash, not what your rich uncle or some other party has lent you, shows prospective lenders that you have a personal commitment to the business.

Few or no assets to pledge as collateral will also make a lender cautious. Are you willing to pledge personal property, real estate or vehicles as collateral in addition to investing your cash? Lenders want assurance you are willing to take the risk, too.

CAUTION: Ask yourself: If the worst happens and the business fails, can you live without the collateral it will take to meet your loan obligation?

3. Poorly Written or No Business Plan

Putting little thought into a business plan translates to a lender the lack of consideration you've put forth in thinking through your business concept. A lender will easily spot that you are glossing over the demographics of your customer base or underestimating expenses. Creating a realistic 12-24 month income and cash flow forecast is critical, in addition to a strong narrative describing the business and justifying the use of the requested financing.

4. Being Unaware of What's in Your Credit Report

Don't be caught off guard about the contents of your personal and business credit reports. You must be able to explain their contents and your past credit history. This is another measure in determining the ability to pay back debt and provides a snapshot of common spending practices.

5. Making Substantial Changes in Personal
or Business Finances

During the loan process, a lender will perceive any substantial change in either your personal or business finances as a red flag. Avoid making major purchases during the approval process as it has the potential to negatively impact your debt load. Changing your asset ratio may disqualify you from the bank's lending criteria that you had previously met.

Seek Advice BEFORE Applying for a Loan

Seek the advice of a lending professional before applying for a loan. Understand the documentation requirements and the expected qualifying criteria. Lenders welcome these conversations so you are well prepared before the process begins. Remember that all banks want to make good loans, and that your success is good for both you and your bank.

Contact Payne County Bank's commercial lending team. We're here to help you be successful. Call 547-2436 and ask for Lynn or Gene or email us at

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