The Importance of Full Disclosure When Applying for a Business Loan

Applying for a business loan makes many entrepreneurs uncomfortable and understandably so. It’s not easy revealing so much information about yourself and your company, especially if some parts about your financial situation aren’t perfect. Still, honesty is the best policy when you apply for a business loan as full disclosure can only help your application while hiding information will almost always lead to problems.

Why Some Applicants Don’t Disclose Everything

If there are some issues with your business or personal finances, it can be embarrassing to admit that to a lender. Some entrepreneurs just reveal as little as possible to avoid this embarrassment. It’s also easy get in the habit of only highlighting the good parts about your business while avoiding the bad, especially if you’ve only dealt with investors in the past. This type of presentation doesn’t work with lenders because they are much more focused on your current situation and problems, not your future prospects.

Another issue is that some applicants figure they can solve a problem before the lender finds outs. For example, they may have an outstanding loan that they expect will be fully paid off by the time their loan application will be processed. This is extremely risky because if the lender finds out, your application will be in trouble even if you’ve already fixed the problem.

Damage From Not Disclosing Information

Lenders are going to fully evaluate every part of your application and financial situation before they give out a loan. They have full-time staff that is trained to find this information so it’s nearly impossible to hide anything.

By not disclosing a problem immediately, it will be a lot worse when the lender finds out later on. First of all, you’ll lose all credibility in their eyes which will badly damage your business relationship together. Many lenders also automatically reject a loan application for lack of disclosure. This means you’ve wasted all the time spent applying. Depending on how much you failed to disclose, you could even be committing fraud with your application.

Benefits of Full Disclosure

On the other hand when you disclose all the necessary information immediately, it shows the lender that you have nothing to hide. If you have some financial trouble, the lender will work with you to get around the issue and still help you find financing.

Even if you can’t qualify for the exact loan you want, they may be able to match you up to something else given your situation. Worst case scenario, they’ll tell you that you can’t qualify and can give you advice about what you can do to qualify in the near future. You won’t waste your time and can immediately start working on another solution.

Don’t let a lack of disclosure get you in trouble with your loan application. By staying honest with your lender, you’ll help your chances of qualifying and take a big step towards building a positive relationship.