For businesses looking to secure adequate funding or working capital, a business finance application might be front of mind. Realising reliable lines of credit can ensure early or growing businesses are able to achieve their financial goals as a company – whether that’s expansion, operational needs or further innovation – and business finance can be the right approach.

However, many businesses’ applications for finance fall short due to various common mistakes. To ensure you put your best foot forward during your application, we’ve put together this helpful guide of the most prevalent errors businesses make when applying for business finance.

Assessment Criteria for Business Finance

Before we begin to list the various common mistakes, it helps to understand how lenders typically evaluate a business for possible finance. The key criteria include:

  • Credit history
  • Cash flow
  • Profitability
  • Collateral/security
  • Business plan

The stronger each of these respective factors are the more likely your application is to be approved. Strong credit histories and consistently positive cash flow indicate strong financial stability. A well-crafted business plan demonstrates that the business is meticulously thought out and ready for the future. Collateral, such as assets like property, allow lenders to reduce the risk on their loan through leveraging additional security. 

Common Mistakes on Business Finance Applications

1. Not having a comprehensive business plan

Understandably, a lot of businesses focus almost exclusively on their credit history, financial statements and availability of collateral to the detriment of a core document: A business plan.

A lacklustre, incomplete or entirely missing business plan will likely fail to inspire a would-be lender and fail to provide them with the confidence that your business has a pathway forwards towards success and repaying the loan.

A robust business plan should outline the mission of the company, provide a market analysis (including a review of competitors and market conditions), financial projections and detailed strategies for growth.

Taking the time to invest thought and consideration into your business plan will demonstrate to potential lenders that you have a clear understanding of your business’s goals, the target market and a way to penetrate the industry, thus giving them confidence in your success.

2. Ignoring creditworthiness until it’s too late

Your business’s creditworthiness is a crucial element in the securing of a business finance application. Unfortunately, many early or start-up businesses overlook not just the importance of avoiding bad creditworthiness but establishing and maintaining a positive credit history.

To avoid this mistake, start regularly checking and managing your credit score. Identify issues as promptly as possible and put in place a plan to ensure that your payments are made in a timely fashion. Improving a business’s creditworthiness can take time so don’t delay!

3. Overlooking Cash Flow Management

Cash flow is one of the main challenges a new or growing business has to face. Nevertheless, many lenders are keen to see how able your business is to generate and maintain consistent cash flow.

Inaccurate cash flow projections can indicate a lack of understanding of market conditions, target markets or the business’s health itself. Neglected or inefficient cash flow management can indicate financial instability and fail to instill confidence in a lender.

To best prepare your business finance application, prioritise maintaining a healthy cash flow and regularly review and update your projections to ensure they are as accurate as possible.

4. Inadequate Documentation

While every lender will have their own process, criteria and documentation requirements, all lenders will require pretty comprehensive financial documents of one form or another.

Providing incomplete, inaccurate or insufficient documentation during the application process can cause, at best, delays to securing funding, or, at worst, application denial.

It’s always harder to compile your documentation after the fact, so be meticulous in preparing and organising your documentation such as financial statements, tax returns and even business licences. Apart from being able to prove that your business meets the required criteria, it also demonstrates your professionalism, reliability and organisational acumen. 

5. Underestimating Collateral Needs

Once again, all lenders are different in their requirements from borrowers and certain financial instruments may not require security in the form of a property or other asset.

However, if collateral is a key consideration for your chosen lender, you will need to ensure you understand how to assess your assets and what can or can’t be used to secure a loan. Carefully evaluate your business’s assets and be prepared to offer suitable collateral that is in alignment with the amount of funding that you are applying for. 

6. Ignoring Regulatory Compliance

Different industries and businesses will require different levels and types of regulatory compliance. Nevertheless, as part of your business finance application, you will need to carefully consider the relevant requirements for your business. Lenders often have strict compliance standards and failure to meet those regulations can result in the denial of your application.

Keep on top of the regulatory landscape of your industry and ensure that your business’s operations align with the relevant standards and laws.

7. Neglecting to Build a Relationship with Lenders

Building a strong relationship with a potential lender can be a crucial aspect of securing business finance. Of course, we’re not talking about anything below board but rather viewing your application process as more transaction and less relationship.

Building a strong relationship with lenders means ensuring open lines of communication, transparency regarding the financial health and position of your business, and demonstrated willingness and ability to meet your financial obligations. It’s about fostering trust and understanding to try and improve your application’s chance of approval.

Fuel your business with ScotPac

The lending specialists at ScotPac are here to help boost your business with the right flexible finance solution for you.

Our business finance offerings are fast, customisable, and suitable for all industries and available within 24 hours once approval is provided. With loans available from $10,000 up to $500,000, if you’re looking into putting through a business loan application, make sure to reach out to the team here today. 

And if you’re not sure which financial product is right for you, use our handy product selector tool here.