Applying for a Business Loan
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Almost 40% of startups fail because they run out of funds or are unable to raise new capital. This shocking statistic underscores how vital funding and cash flow are to sustaining a business.

While business loans are an obvious solution to this problem, the application process can be complex and full of pitfalls. In the Philippines, less than half (48%) of small businesses receive funding, and only 20% get the total amount they ask for.

Securing a business loan requires careful planning and a thorough understanding of the lending ecosystem. You need to make every effort to maximize your chances of getting approved. To that end, here are the most common blunders to avoid when applying for a business loan in the Philippines.

7 Loan Application Pitfalls and Their Solutions

These seven mistakes are the most common reasons business loan applications get denied in the Philippines.

1. Lack of a solid business plan

Many applicants fail to provide a comprehensive business plan, which is crucial for lenders to understand the viability and direction of your business.

A good business plan outlines your company’s goals and your strategy to achieve them. It also highlights your business’s unique value proposition and growth potential. Financial projections and market analyses also go a long way to supporting your claims.

2. Weak financial records

Incomplete, disorganized financial records make it difficult for lenders to assess your business’s current situation. These missing records warn lenders about your loan repayment capabilities.

Always organize and update your financial records meticulously. This practice helps with loan applications and has the added benefit of minimizing the chances of future headaches with other critical business processes like taxes. Invest in a professional accountant or accounting software to maintain your ledger.

3. Unrealistic loan requests

Some applicants overestimate their borrowing needs. They request an amount far exceeding what’s reasonable or necessary for their business operations.

To prevent this, conduct a thorough assessment of your financial needs. Make sure it’s a realistic amount based on the following factors:

  • Operating expenses
  • Expansion plans
  • Potential cash flow fluctuations.

Your requested loan amount should align with business objectives and your capacity to repay it. Remember that while you may want more capital, the figure should be justifiable to lenders.

4. Poor credit history

Your business’s credit score may lower because of:

  • Missed payments
  • Defaults
  • Bankruptcy

Applicants with these instances in their history may struggle to secure a business loan. Focus on rebuilding your credit as soon as possible by paying off outstanding debts and addressing any discrepancies in your credit report. Make timely payments on existing debt or work with a credit counselor to develop a realistic plan for repairing your score.

5. Insufficient collateral

Lenders will often require collateral they will receive in case the borrower defaults. Applicants who fail to provide adequate collateral may find it challenging to secure a loan or may be offered less favorable terms.

If your loan requires capital, assess your available assets and consider offering them as security. Real estate is the most used collateral, but you may also be able to use your equipment, inventory, or accounts receivable.

Alternatively, explore options such as a personal guarantee or finding a co-signer with more robust financial standing to support your application.

6. Not comparing loan options

Failing to research and compare loan options from multiple lenders can result in applicants missing out on better options. It should be natural for you, as a business owner, to find the best deal available, especially for such a significant decision as getting a business loan.

Take the time to research and compare loan products from multiple lenders. You want to compare the following factors:

  • Loan fees
  • Repayment terms
  • Eligibility requirements
  • Special benefits

You may also be able to negotiate to improve the loan terms even further.

7. Incomplete or inaccurate application

Lenders rely on their forms and requirements to assess your application. Submitting an incomplete or inaccurate loan application delays the approval process and, in some cases, results in an automatic rejection.

This mistake is probably the easiest to remedy as long as you’re patient. Triple-check your loan application to see if it’s complete and accurate. Review each document. Additionally, follow up with the lender to confirm receipt and address any questions or concerns promptly.

Opportunity Amidst Obstacles

Your business is bound for success, but only if you know how to make it bloom. Business loans offer financial aid that will help get your business off the ground.

However, loan applications present many challenges and potential headaches, which is why you need to be ready. But each obstacle may be an opportunity in disguise, so address these pitfalls head-on and implement strategies to overcome them to improve your chances of securing funding.

Accept these challenges as the growth opportunities they are, and you’ll emerge stronger and better positioned to achieve your business goals.

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