Things to Avoid Doing If You Plan on Applying for a Small Business Loan
Applying for a small business loan is not a spur-of-the-moment decision. It is something that must be planned in advance, so you give yourself ample time to prepare for the application process. Every time you apply for a loan and get rejected, future lending institutions will see your record, and the previous rejections will inevitably sway their decision about you. So, if you plan on applying for a small business loan anytime in the several months, here are things to avoid doing, starting now:
Opening a new credit card account will negatively affect your credit score in the beginning. This is impossible to avoid, although the damage does go away eventually if you maintain great credit. But you don’t want this negative effect to impact your ability to get approved for a loan. So, avoid opening new credit cards for the time being. Your existing card will be enough to get you past your loan application – all other cards can wait.
Avoid paying any bills late. This applies all the time, not just before applying for a small business loan. Every late bill causes your credit history to take a hit, and those late bills can really add up. The bottom line is to avoid making purchases if you don’t have enough money to pay it back right away. Only purchase what you can afford to pay back. Don’t go into debt, especially not if you plan to apply for a small business loan soon.
Don’t max your credit limit on your credit card, as this causes your credit score to take a hit as well. In fact, don’t even approach your credit limit if you can help it. Try to stay under one-third of your credit limit every month, as any more can hurt your credit score, or at the very least, will not help your credit score. Big purchases can wait until later. Before applying for a small business loan, stay as far from your credit limit as possible.
Be it a student loan, a mortgage, or an auto loan, apply for it after you have gotten approved for a small business loan. Racking up debt before applying for a small business loan can hurt your chances of getting approved for the business loan. This is because lending institutions don’t like loaning money to people who are already in debt to other institutions and have not yet proven their ability to pay the money back in a timely manner.