At a time when the American economy is reeling from the effects of unfettered credit card debt, housing foreclosures, and price increases on everything from a gallon of gas to a can of tuna, bank loans are fast becoming a shrinking commodity.

According to a recent Federal Reserve survey, the banking world is responding to the economic turmoil by tightening the reigns in the lending department. This comes as sour news to consumers and small businesses in need of additional funding.

With the cards stacked up against many bank loan applicants, I thought it would be a good idea to post a list of some of the worst mistakes to avoid when applying for bank financing.

1. You don’t do enough research. Don’t make the mistake of applying at a particular bank just because it is around the corner from your house. Find out which banks have a reputation for approving the kind of funding you are seeking. Also, don’t be afraid to seek out alternative financing sources, such as credit unions, community organizations, and government programs as well as alternative financing methods, such as home equity lines of credit, accounts receivables factoring, and business cash advances.

2. Your paperwork is unclear or inaccurate. Make sure all the forms and documents that you submit to the loan officer are both clear and accurate. Trying to forge or leave out information that may reduce your chances of receiving the loan can easily backfire leaving you with a bad reputation and without your funding.

3. You provide insufficient information. Make sure you are familiar with the bank’s loan application requirements before you come to the interview. Some banks will ask to see your tax returns, and providing your current credit history and credit score is a must no matter how embarrassing it is! Business applicants will additionally need to bring certain financial statements, such as a balance sheet or income statement.

4. You present yourself and your business as financially or structurally unstable. A general rule of thumb when it comes to bank financing is to try avoid applying for a loan while you are in the process of making major changes in your life or your business. In other words, don’t apply for a loan in the middle of a move or a business restructuring.

5. You present yourself as unorganized and without clear direction. Banks are looking to fund people and ventures that will make them money. Period! Consumers need to be very clear about where and how they hope to spend the funding they receive as well as their ability to pay back the loan. Business owners need to take it a step further by providing a good business plan that details how the business operates, who it caters to, and what plans are in store for the future.

6. You are unprofessional at the interview. Your bank loan interview is just like any other. Make sure to be on time, courteous, and neatly dressed. Pay attention to how you express yourself (it may even be a good idea to rehearse a little before the actual interview). Try to avoid abrasive and vulgar language, and never insult the bank or acting loan officer.

7. Not so fast! The relief that comes with a loan approval may cause you to zip through the remaining paperwork and bank “formalities,” but you might want to pause before you so quickly sign the dotted line. Make sure you are very familiar and comfortable with the bank’s terms and conditions on the loan before you agree to anything. If you have difficulty understanding the legal jargon then take the documents to someone who can explain it to you. There is nothing worse than binding yourself to something you don’t want.

Image credit: Flickr userĀ  filipinoj

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