Twelve Tips for Getting Your Bank Loan Approved and Thinking of Getting a Bank
Finding the money needed to start a new business is almost always one of the most
difficult obstacles new owners face. The most likely (and easiest) sources of
capital are your families, friends and own savings. However, you should not
overlook institutional sources as well.
Without a previous track record in business, securing a bank loan may be
difficult. Banks cite risk factors and increasing costs of servicing small
accounts as the primary reasons for minimizing their exposure to small businesses.
Still, it can be done. Here are the steps that you should take to improve your chances of getting that much-needed bank loan:
1. Keep in mind that to stay in business banks need to make loans.
Do not be afraid to ask for one. That is what the loan officer wants you to do. To
increase your chances of getting a loan, look for a bank that is familiar with
your industry and who has done business with companies like yours. Seek out banks
that are active in small business financing (Read the article How to Get an SBA
Loan). Some banks lend on a conventional basis (lending money without government
support), while some banks participate in government programs (in the form of
government participation involving direct government funds or loan guarantees).
Know the various loan products offered by banks, such as:
Term Loans = Banks provide $10,000 to $500,000 loan amounts for the purchase of
inventory, equipment and large ticket items. These loans can be unsecured (often
with variable rates) or secured (often with fixed rates).
Commercial real estate mortgage = Secured by real estate, these loans are used to
refinance, purchase or improve commercial or investment properties. Loan amounts
can be anywhere from $25,000 to more than $500,000
SBA Financing = for those who may not qualify for a standard loan, SBA loans are
guaranteed by the federal government
Business lines of credit = some banks offer business credits for overdraft
protection, which is a a line of credit that protects your business checking
account, up to the approved limit. Other banks give you business credit cards that
you can use for your business.
Secured Loans = banks offer credit for a number of business purposes, such as improving cash flow, refinancing debt, or financing account receivables. Most secured loans are quick to get, and some banks provide fix rate financing for secured loans. However, this type of loan is given mostly to established businesses with financial documentation for at least 2 years, rather than a startup with no history.
Vehicle loans = if you are planning on buying a vehicle for your business, banks offer vehicle loans that allow you to borrow up to 100% of the purchase price of a new or used auto, van or truck.
Talk to your local banker and let him or her explain to you the various loan products they have for the small business owner. Discuss your situation to assess what products may work best for you, and what products you may be likely to get approved. However, be aware that banks often require proof that you can repay the loan, and that includes collateral requirements, assets deposited in the bank,
among other things.
2. Be prepared.
As an entrepreneur, make sure that you are thoroughly prepared when you go to your banker’s office to request a loan. You need to show your bankers that a loan to you is a low-risk proposition. Have on hand a completed loan application, copies of cash flow and financial statement projections covering at least three years, and your cover letter.
3. Learn to anticipate every question that he or she has.
Remember, the combination of information and preparation is the most powerful
negotiating tool in the world. A confident and thoroughly prepared borrower is
four times more likely to have his or her loan approved than a borrower who does
not know the answer to some of the basic questions a banker asks. To show the
extent of your preparedness, your business plan should also include answers to
your banker’s questions. These questions normally are:
How much money do you need? Be as exact as possible; although adding a little
extra for contingencies will not hurt.
How long do you need it for? Be prepared to go into detail about what the money
will do for you and why your business is a good risk.
What are you going to do for it? Businesses use loans for three things: to buy new
assets, pay off old debts, or pay for operating expenses.
When and how you will repay for it? Your cash flow projections should provide a
repayment time frame. Convince the banker of the long-term profitability of your
business and your ability to repay the loan by using your financial projections
and business plan.
What will you do if you do not get the loan?
4. Do not take an apologetic and negative attitude.
Keep your negativity in check. Present yourself as an entrepreneur who can and
will repay the loan. Boost your image by providing your loan officer with any
promotional materials about your business, such as brochures, ads, articles, press
5. Dress professionally.
Dress in a professional manner for your meeting with your banker. You want to
project the image of an entrepreneur who is trustworthy, and most of all, who has
the ability to repay the loan. This is a business transaction, so treat it as
6. Do not stretch the truth in your loan application.
Broad, unsubstantiated statements should be avoided. The lender can easily check
many of the facts on your application. If you cannot support statements with solid
data, then don’t make them. Do your homework and spend time doing research to be
able to support everything you say, including every single number in your
projections. It is best to keep projections, assets lists and collateral
statements on the conservative side.
7. Keep all your documentation ready.
Be sure all your documents are neat, legible and organized in a cohesive and
attractive manner. Type all your loan documents. Handwritten documents look
unprofessional. Don’t forget to include a cover letter.
8. Do not push the loan officer for a decision.
Doing so might result in a rejection. Your banker cannot make a decision until all
your documentation is complete. To ensure a speedy decision, make sure that your
application is complete.
9. Be confident.
An attitude of confidence enhances your chance of getting the loan. Show that you
can make a success out of the money that the bank will lend to you. Visualize in
your mind the positive results of your bank application.
10. Keep trying one lender after another until you get your loan. To improve your
position as you change bankers and banks, the best way is to ask for a referral
from a successful entrepreneur. Before you decide to approach a bank directly,
find an associate, friend or acquaintance that is in good standing with the bank
to give you a good referral. Bankers tend to deal more favorably those who were
referred to them by their best customers.
11. Be ready to discuss risk in your application.
You must remember one thing: there is no business without risk. If you do not
discuss risk, the bankers will assume that you haven’t thought about risk. Let’s
face it – try as we might, we cannot plan for everything, for every contingency,
for every turn of events. Bankers would want to know if you have planned for the
major risks and how you intend to manage it.
Then, there is also the risk of too much success. The demand for your products or
service may exceed well beyond your expectations, and they would want to know how
you intend to handle success.
12. Remember that the first loan is usually the hardest to get.
Bankers prefer to lend money to borrowers who have borrowed at least once and have
paid back at least one loan on time. They are not venture capitalists that make
high-risk loans regardless of the profit prospects of your business. Bankers
prefer to lend to low-risk, low profit ventures than to high risk businesses or
those with no record of accomplishment.
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