Skip to content

3 Business Loan Application Mistakes and How to Avoid Them

By: Randa Kriss - NerdWallet

Published: March 1, 2022

3 Business Loan Application Mistakes and How to Avoid Them

Access to affordable capital is essential to running a small business. Still, the process of applying for a business loan can be daunting — and approval isn’t a sure thing, even if you have good credentials.

According to the Federal Reserve’s 2021 Small Business Credit Survey, 12% of businesses that needed financing but chose not to apply did so because they believed they would be turned down.

With loan approval rates slowly climbing at the beginning of 2022, however, business owners have an opportunity to refine the application process and improve their chances of getting approved for the funds they need.

Here are three common mistakes to avoid when applying for capital for your small business.

1. Choosing the wrong small-business lender

Before starting the application process, one of the first mistakes you can make is choosing the wrong lender.

It’s important to ensure that a business owner is looking in the right place, says Tony Giuliano, vice president of credit policy and underwriting at Accion Opportunity Fund, a nonprofit community development financial institution based in California.

Going online and doing a quick search may not be the best way to find a small-business lender. “In some of those cases, you could find someone who’s charging exorbitant fees or you could just be a number, and if your credit score isn’t good enough, just get rejected without much help or assistance,” he says.

Giuliano recommends performing thorough research to understand the lending market, as well as your business’s current situation. He says using several resources — such as experts from your local community development financial institution or the Small Business Borrowers’ Bill of Rights — can help you better understand the different products and programs and, hopefully, provide you with more available options.

2. Rushing the paperwork

A business loan application involves a variety of personal and business documentation, but the specific information you’ll need to provide can vary widely from lender to lender.

“Perhaps the biggest mistake that business owners can avoid is submitting incorrect or stale items to the lender,” said David Tuyo in an email. Tuyo, the CEO of University Credit Union, which serves employees, students and alumni of several universities throughout California, added, “Borrowers need to ensure that everything they submit as part of the application process is entirely accurate and timely.”

And with the adoption of automated underwriting, it’s even more critical that you read and answer all application questions carefully. If you’re applying online and the lender is using automated technology, says Giuliano, and you input the wrong information — or don’t answer the question as intended — it could result in an automatic rejection.

Being organized is essential when navigating different lender requirements and handling multiple loan applications. Therefore, you should have all of your documentation and financial information in one place, orderly and readily available, says Elizabeth Magennis, president of ConnectOne Bank, a regional bank with locations in New York and New Jersey.

Magennis recommends using basic financial software, such as QuickBooks, to simplify organizing and quickly pull your financial numbers.

3. Going through the process alone

Whether you’re trying to get a business loan for the first time or you’ve been through the application process before, it can be overwhelming to manage all of the moving parts, especially while continuing to run your small business.

“I think a lot of the time, business owners may not have the right advisory team to help them get organized and guide them through the financing process,” Magennis says. “Across the board, I’ve seen business owners go back and forth with their lender trying to get the right documentation, when they should be reaching out to their accountant, attorney or local Small Business Development Center for assistance,” she says.

Financial professionals, SBDCs or other local business organizations can help you prepare your business finances, work with you to address questions or problems during the underwriting process, and hopefully, improve your chances of loan approval.

And once you’ve been approved, you can use the knowledge and strategies you’ve gained from these resources, says Giuliano, to set yourself up for success in deploying your capital and growing your small business successfully.

The article 3 Business Loan Application Mistakes and How to Avoid Them originally appeared on NerdWallet.

View all posts

Members' Voice Testimonials

This credit union is the best, I love the customer service and you can't beat the interest rates. I'm happy to be a member of this great credit union.

USSFCU has always been accommodating, easy to work with, and staff are always kind. I have every intention of keeping my account with this bank for a long, long time.

The branch manager introduced herself and was extremely helpful. She stated that if there is anything we ever need to please let her know. Very positive experience!

Greta was absolutely amazing - as always. She makes me and my parents feel valued and supported. We are forever grateful. [The Credit Union] has been hugely supportive over many years. And we feel known and cared for.

Long as I have been with the credit union, I haven?t had any problems. I also like the protection on my account.

My overall experience at the credit union was exceptional. The staff was hospitable offering water, my service was timely and professional and the office was well lit and clean.

As a member for more than 40 years, i have always had great service from the USSFCU and know that they stand behind their great reputation.

A top rate Credit Union, [I'm] privileged to be part of! Thank you for all you do for our family! USSFCU Credit Union was able to resolve our financial situation - vehicle, personal loans, customer service/recommendations, within 6 months. We belonged to another credit union for over 20 years, with results not even close to comparison. We switched ...

Your people and products are amazing. The recent [online banking] overhaul is phenomenal. [I've] been electronic banking since Tele action phone banking - paying bills with my push button landline decades ago. USSFCU is light years ahead of everyone else in terms of ease of use and client experience!

Read More testimonials.