It is a fact that things have become pretty challenging and it is certainly very difficult today to secure a loan easily for your small business, thanks to the great recession. However, you need to realize that lenders and banks still require loaning funds to the small businesses. If you are looking for funds for your small business, your focus should primarily be on knowing exactly how to go about it and end up getting the best terms possible.
Due to the highly demanding business scenario, it is almost impossible for businesses to survive without a loan or an additional line of credit at some point or the other. In case, you have never taken a loan for your small business before, prepare yourself well as the first loan seems almost always the hardest to acquire. This is because, bankers generally, prefer to lend funds to those borrowers who have taken a loan at least once and repaid it on time. You must understand that banks are not like the venture capitalists that are comfortable making high-risk loans.
Banks certainly have an inclination toward low-profit, low-risk ventures and they are not very keen on high-risk businesses. Banks are pretty skeptical about people with absolutely no business loan record. Banks have minimized their exposure to these small businesses because of the risks involved and also because of the ever-increasing costs associated with servicing small accounts. Despite all this, you could still successfully acquire a small business loan.
Here are a few important tips for getting a small business loan approval from your bank.
Look for a Bank that Has Exposure to Your Industry
You need to find a bank which seems pretty familiar and conversant with the ways of your precise industry. Your chances of getting a loan for your business could go up provided you find a bank that has been doing business with organizations like yours. Look for banks that have been actively encouraging small business financing. Some banks would be lending on a purely conventional basis. (Lend money without any government support), while other banks would be participating in government programs.
Must Possess Sound Knowledge about Loan Terminology
Brushing up loan terminology would be a smart trick if you wish to get loan approval smoothly. It is always a good idea to know exactly what loans you are dealing with and it never hurts to know the terminologies involved. Here are some basic terms associated with loans that you must have a clear idea about. Polish your knowledge about loan terminology.
Term Loans: Banks are known to be providing $10,000 to $500,000 worth of loans for purchasing equipment, inventory, and also large ticket items. This sort of loans could be unsecured (quite often includes variable rates) or they could be secured (quite often includes fixed rates).
Business Lines Of Credit: Some banks would be offering business overdraft protection line of credit; this specific line of credit would be protecting your business checking account to a certain upper limit. Other banks would be offering business credit cards.
Secured Loans: Banks would be offering credit for many reasons such as financing account receivables, refinancing debt, and boosting cash flow. Most of the secured loans could be acquired quickly and hassle-free. Some banks would be providing fixed-rate financing particularly, for these sorts of loans. However, you must note that this sort of loans would be approved mostly for businesses that are established and have provided necessary financial documentation for minimum last two years.
Vehicle Loans: If you intend to purchase a business vehicle you could avail a vehicle loan. Banks would be offering vehicle loans amounting to as much as 100 percent of any vehicle’s purchase price whether a used or new car, truck, auto, or van.
Commercial Real Estate Loans/Mortgage: These loans are secured specifically by real estate and these loans are often used for refinancing, purchasing or improving investment or commercial properties. Loan amounts would be ranging from $25,000 to over $500,000.
SBA-Guaranteed Loans: No need to be frustrated if you are not able to qualify for any standard loan. You could opt for the SBA loans which have been specifically designed for the so-called small businesses and they carry a guarantee from the federal government.
You need to talk clearly with your banker and allow them to explain clearly the various loan products available to you for your small business. You need to do a thorough assessment of all the products. Identify the ones that seem to be best for you and determine which products would have better chances of approval. You must understand that banks would be requiring proof that you are capable of repaying the loan, including assets that are deposited in that particular bank and collateral requirements.
Prepare Yourself
You must visit your banker fully prepared. You need to demonstrate confidence and let your bankers get the feel that it is certainly a low-risk proposition to give you a loan. You must go for the scheduled meeting with your banker with a nicely completed loan application, financial statements and other documents including a cover letter.
Know Your Exact Credit Score
This is the most important factor for loan approval. All creditors or lenders are concerned with the credit scores and they would be seeing this first while reviewing any loan application. It is, therefore, essential for you to know your precise credit score. FICO credit scores would be ranging from 300 to a maximum of 850. Any business with a credit score below 600 would be finding it rather challenging to secure any business credit from the financial institutions.
Expect to Be Grilled
Loan negotiations could be as tough as job interviews. It is best to be mentally prepared to face tough questions. You need to prepare answers to all probable loan related questions in order to create a very good impression. You have to appear confident and you must be fully prepared. A borrower who is able to come up with prompt and precise answers to the lender’s questions, stand a 4x better chance of getting a loan approved. You must have answers to vital questions like how much money you would need, for how long would you be needing it, how do you intend spending the money, when do you propose to repay the amount, are you offering a collateral and what precisely is the collateral. Get ready to be grilled thoroughly by your lenders. Remember to avoid telling lies and avoid unsubstantiated statements. Be honest and do not consider stretching the truth in whatever you say because all your records and documents could be cross-checked.
Be Ready with All Relevant Documentation
Make sure that all relevant and necessary documentation is ready and in order. All documents should be legible, neat and well-organized. Go with typed loan documents. Avoid handwritten documents as they spell unprofessionalism. Remember your banker would not be able to make any decision unless your documentation is complete.
Dress Formally
You must wear formal clothes for the meeting with the banker. It is essential to dress professionally to create a good impression. You must demonstrate that you are trustworthy, sober and professional through your dress sense. You must look like a committed and confident businessman who means serious business. You must brim with confidence and be sure to get the loan approval.
Conclusion
Be persistent and never give up easily. If one banker does not approve your loan, there is no reason to be disheartened. You need to keep trying and be sure to get a loan approval soon enough. The key to success is determination, confidence, and patience. Look for a friend or an associate who is having a good rapport with your bank. Request him for a referral. Bankers prefer referrals from established entrepreneurs. Bankers are used to networking extensively and so they have full faith in referrals from reliable and good customers. Do not lose hope, simply go for it.
