Getting a Small Business Loan? These 7 Mistakes Can Kill Your Application

Getting a Small Business Loan? These 7 Mistakes Can Kill Your Application
Caitlyn Rose
on March 23, 2020
Read in 3 min

If you found yourself here, it could be because you’re serious about getting a small business loan.

Chances are, at some point you might need a quick injection of capital for your business to keep on moving forward.

But with so many potential options out there, requesting small business funding can seem like a daunting task.

Common mistakes made during your loan application could affect how long a lender makes you wait before you hear if you’re approved for a small business loan.

These mistakes are often avoidable, so make sure you’re prepared before applying.

So what should a business owner do to increase their chances of getting a small business loan?


Avoid the following mistakes to help boost your chance.

Mistake #1 – Low Deposit Volume

Lenders want to see activity –

And a lot of it.

Making two or three deposits per month will tell lenders that you don’t have much activity in your business, and they may see you as a high-risk borrower.

At a minimum, you should:

  • Make multiple deposits per week
  • Make consistent deposit amounts
  • Make branch and/or ATM deposits

So remember:

If you’re thinking of getting a small business loan, try increasing the frequency of your business bank account deposits in the months leading up to your loan application to really boost your application.

Mistake #2 – Not Enough Deposit Revenue

This holds true, especially for revenue-based loans.

If you’re not depositing all your business revenue, then how will the lender know if your business makes money?

Cashflow is the lifeblood of any business and it makes the lender feel safe about you from a risk perspective.

As a rule of thumb, make sure to:

  • Deposit all business revenue, including checks and cash
  • Automatically deposit your settled credit card funds
  • Avoid transferring non-revenue funds from other accounts

Mistake #3 – Incurring NSFs/Negative Balances

While lenders want to see activity in your business by means of multiple deposits of consistent amounts, they also want to see that you are not in the red.

In other words, they want to see that you are solvent at the end of the month.

So long as you don’t incur multiple NSFs and don’t carry a negative balance in your business checking account consistently, you may be ok.

When getting a small business loan, keep in mind:

  • Keep NSF overdrafts to a minimum (less than 3 per month)
  • Limit the number of days your balance is negative
  • Develop a plan to cover any foreseeable overdrafts in the future

Because lenders do want to measure their risk.

Because these are not credit-driven loans, but are based on the overall cash flow of your business, you have to demonstrate your ability to repay the loan.

Mistake #4 –Not Having A Business Plan

If you want to be taken seriously, you should have a business plan in place before you apply for a loan–

This much should be elementary.

Almost all lenders will require that you have an organized and well-written business plan before they move forward with the loan process.

Your business plan should include your business concept, products, services, goals, target market and projected financials to help determine how much you need to borrow.

The burden is on you, the business owner, to convince lenders that they should invest in your business.

If you have a well-written business plan, it demonstrates that you have thought through all the details and lenders could be more likely to approve you for a loan.

Mistake #5 – Not Pledging Collateral

Collateral is something that is pledged as security for payment, such as property.

For certain types of business loans, lenders will require that you provide some type of collateral.

Other times, pledging collateral is optional.

In either case, pledging collateral greatly reduces the risk assumed by the lender making them more inclined to grant you the financing you want.

There are several things that can be used as collateral such as business equipment, cash savings, or real estate.

In many cases, a property is used as collateral for a small business loan.

Mistake #6 – Not Checking Your Credit

This should be obvious, but it’s a good idea to check your credit before applying for a business loan.

Get a free copy of your credit report from each of the major credit bureaus.

The most important thing here is making sure all of the information is accurate.

If it’s not, then you should correct it before starting the loan application process.

While revenue-based loans look more at business cash flow, your credit score is one factor that lenders may look at before approving you for a loan.

It’s also a good indicator of the kind of interest rate you can expect.

If your credit score is high, then lenders will be more likely to approve you for a loan.

Lendistry, for example, likes to work with borrowers with a minimum credit score of 600:


Lenders are reluctant to give out business loans to people with low credit scores.

But don’t despair:

Getting a small business loan isn’t your only option.

Even if you don’t have a high credit score, you may still be able to get alternative financing.

Mistake #7 – Not Doing Your Homework

The Small Business Administration provides a checklist of everything you need to request a business loan.

Save yourself a headache (and make a great impression on the lender) by preparing all the necessary documents ahead of time.

Before starting the process:

  • gather your personal background information
  • your personal credit report
  • financial statements
  • business plan
  • and legal documents.

If your business is already in operation, then you should also provide a copy of your business credit report.

At the end of the day, you have more control over the loan process than you might think.

By self-evaluating your business ahead of time, you’ll have half the work done before even meeting with a lender.

This can speed up the process and increase the likelihood of getting a small business loan with favorable terms.

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Caitlyn Rose Finance Journalist

Caitlyn is a business consultant and writer with an intimate understanding of business finance.

An entrepreneur at heart, she supports small local businesses whenever she can.

1 Comment
3 years ago
Thank you great article