Almost all small businesses experience the requirement of financing, whether for expansion purposes, covering working capital, or paying for major business purchases. The gold standard in lending is a small business loan. That is because it gives a lump sum advance, agreeable repayment terms over several months or years, and a set interest rate that keeps the cost of borrowing quite low.
However, not all businesses can qualify for a loan. Definitely, there is a small chance a loan can be approved based on fake/false statements or financial statistics. However small business owners shouldn’t be desirous towards lying on a small business loan application, irrespective of how despairing the requirement for financing might possibly seem.
Here’s what small business owners need to know about the application process of small business loan – and the risks of lying attached to it.
Applying for a Small Business Loan
Small business loan applications follow a similar way as personal loan applications, with some differences. Primarily, small business owners are required to offer detailed information about the business and personal financials. Lenders will review:
- Business and personal income tax returns
- Balance sheet and profit/loss statements
- Business and personal bank statements
- Business licenses
- Financial projections
- Revenue details from the last couple of years
In addition to these documents, lenders may additionally ask for a detailed description describing what the loan will be used for. There are some lenders who want to review business plans, and products or services descriptions as a part of the application process.
Traditional lenders will pore over the details provided so that a legitimate decision can be made on the creditworthiness of the borrower. Generally, the method can be unmanageable. But if approved, a small business loan is often the most reasonable form of business lending.
Why People Lie on a Loan Application?
Lying on a small business loan application can additionally come to mind when business owners are not confident of their ability to qualify for a business loan. Shifting the numbers upward, even by a small amount, can make for a stronger application – and consequently a better chance of getting approved for small business financing.
Some business owners can also feel the need to lie on a loan application because they are concerned about the future of the business. A small business loan might be the only thing for them that keep their doors open. Others might see a business loan as the only solution to expanding operations or rolling out a new service or product. It is strictly recommended do not lie on your small business loan application.
You Can’t Escape With Lying About Your Income
It’s hard to lie on a small business loan application because of the specified details required as part of the application process. However that doesn’t suggest applicants don’t do it.
Lying can encompass inflating the financial facts of the business or the earnings of the business owner. Others would possibly take it a step further through misrepresenting documents such as tax returns or revenue statements to make the loan application seem more effective.
The qualified borrowers have been in business for more than two years, have healthy cash flow and annual sales, and probably have an owner who has a high credit rating and unblemished credit history. And if that is not the case, then lying on a small business loan application isn’t uncommon.