Twelve Tips for Getting Your Bank Loan Approved
Securing a bank loan
to finance your small business is getting to be more difficult. Here are twelve basic steps you must take before going to the bank for a business loan.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.
to finance your small business is getting to be more difficult. Here are twelve basic steps you must take before going to the bank for a business loan.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. Some banks lend on a conventional basis (lending money without government support), while some banks participate in government programs (in the form of government participations involving direct government funds or loan guarantees). However, be aware that banks often demand stiff collateral requirements for start-ups.
2. 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 releases, etc.
5. Dress in a professional manner for the interview. This is a business transaction, so treat it as such.
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. 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. Failure 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.
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. Some banks lend on a conventional basis (lending money without government support), while some banks participate in government programs (in the form of government participations involving direct government funds or loan guarantees). However, be aware that banks often demand stiff collateral requirements for start-ups.
2. 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 releases, etc.
5. Dress in a professional manner for the interview. This is a business transaction, so treat it as such.
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. 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. Failure 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.
Six Great Tips For Getting A Personal Loan
Here are some great tips to help you get your loan and to avoid some of the booby traps along the way.
Credit cards can easily be mis-used, but it's hard to mis-use an unsecured personal loan with a fixed interest rate. You simply set aside enough money to pay off each monthly bill. That's why I like them.
But getting a half decent one can be tricky if your credit rating isn't perfect and, regardless of your credit history, there are some booby traps to watch out for whilst you're doing it. Here are some tips for any and all hopeful borrowers:
1. If your credit record isn't perfect
If you apply for a loan beyond your reach, you may be offered a much worse interest rate than the 'typical' APR advertised or, more likely, you'll be rejected. This will make your credit record even worse, because making multiple applications in a short space of time looks bad to many lenders.
Consider a tactical application. You're more likely to be accepted if you go for a loan with a slightly higher typical APR. Take a look at our loan partners page, for example. (Although we have partners, you can still compare the whole loan market through us.) This page contains the two cheapest loans on the market, supplied by Moneyback Bank and its owner, Alliance & Leicester. With these, an £8,000 loan over three years will cost you in interest just £778 and £802 respectively.
However, our data shows that just 20% (approximately) of applicants for these loans are successful, because they want the borrowers with the best records. Now compare this with Northern Rock, which costs you £914 in interest, but the acceptance rate is excellent at around and above 40%.
2. Look at costlier loans with more flexible terms
Some loans are flexible: they allow overpayments or a full, early settlement without penalty. Northern Rock's (I noticed when researching point 1 above) is unusually flexible in that it allows as many overpayments as you want for any amount, plus you can pay the whole lot off early.
If you took your £8,000, three-year loan out with them and overpaid by £150 roughly every three months, you'd save about £150 in interest, so that you've paid no more than a borrower with Moneyback Bank. Furthermore, you'll pay off your loan in just two years and five months, so you'll have a seven-month savings head-start. This would be about £2,000 in the bank by the end of year three, if you saved all the money you had been putting into repaying your loan!
You can find more flexible loans through The Fool by looking at the 'Other Charges' column in our comparison tables. Look for the words 'No charges that we know of'. You can then get further information by clicking on the 'Details' button.
3. What happens if you're declined?
Referring back to point one, above, you may be wondering what happens to the 60-80% who are rejected. Well, in addition to having a small mark put on your credit record, you are often referred to secured-loans companies, which will ring to pressure you into buying a loan that may be dodgy and probably expensive, with variable (not fixed) interest rates.
Sadly, we at The Fool can't stop lenders doing this to you even when you take out a loan through us. However, you can stop it yourselves! What you must do, as always, is read every page of the small print thoroughly. There will be a check box to stop the lender passing on your details to any other company. Some lenders make it difficult to find, so click on every link and read through it thoroughly.
4. Ring a company you already deal with
If your credit record is looking pretty rough, you may find that contacting a company which you already have a product with is your best bet. Don't just snap up any old loan it offers you though; think carefully about how much it costs, and consider whether you could do better.
You could always ask the helpful Fools on our Dealing with Debt board if you'd like their views on a loan you're offered.
5. Get a quote with PPI
Payment protection insurance (PPI ) is hideously over-priced when you buy it alongside a loan. A £7,500 five-year loan with the cheapest provider, Moneyback Bank, at its typical interest rate equals £146 per month. If you add to it Moneyback's PPI it costs £185 or £39 more per month. This will cost you an additional £2,340 by the end of the loan!
However, if you buy PPI separately with a provider like SecurityFirst, it'd cost a fifty-year old £332 in total (£5.53pm), and a 25-year old just £153 (£2.55pm). (Some providers make it more expensive for older people as they're more likely to become ill.) These are huge savings of £2,013 and £2,192 respectively!
If you decide to get PPI, make sure you thoroughly read and understand the small print, especially what claims are excluded, to make sure it's suitable. To take just one example, it's less beneficial to self-employed people. Learn more about stand-alone PPI in Ditch Your Rip-off Protection Today!
Thing is, you're more likely to get a loan if you request PPI, because the lender makes so much money from it. So, you could hugely improve your chances of getting a loan if you submit a request for it with payment protection insurance included. Then, as soon as you've got the paperwork, you send it back without signing it and ask for a re-quote without PPI. It would be very difficult for the lender to subsequently decline your amended application. But please make sure you do send it back without delay, or it'll cost you!
6. Watch the APR; it can be misleading
Lenders can manipulate APRs (the annual percentage rate of interest) to make them look better than they are. Therefore, to compare loans you should ignore the APR and instead look at the total amount repayable and the monthly payment. We make this easy for you in our loans centre.
7. Don't let the lender drag out your loan
Finally, the lender may offer you a longer loan than you ask for, tempting you with lower monthly payments. However, you'll pay more in interest if it's spread out for longer, so you should aim to pay off your loan as quickly as you can realistically afford, bearing in mind you still need to have enough money set aside each month to be able to cope with inflation (rising prices) and emergencies.
You might improve your chances of getting a loan by pretending you want to spread out the payments further. If you want to pay it off over three years, get a quote for five years instead. Then, when the paperwork arrives, send it back immediately without signing it, saying that you've changed your mind and want it over three years. They're less likely to turn you down then.
However, they might turn you down, even if they've transferred the loan to you before you've returned the paperwork (which they often do, the cheeky devils). So make sure you don't spend any of the money you've received, or don't pay off any other debts with it, until you've agreed the loan.
Credit cards can easily be mis-used, but it's hard to mis-use an unsecured personal loan with a fixed interest rate. You simply set aside enough money to pay off each monthly bill. That's why I like them.
But getting a half decent one can be tricky if your credit rating isn't perfect and, regardless of your credit history, there are some booby traps to watch out for whilst you're doing it. Here are some tips for any and all hopeful borrowers:
1. If your credit record isn't perfect
If you apply for a loan beyond your reach, you may be offered a much worse interest rate than the 'typical' APR advertised or, more likely, you'll be rejected. This will make your credit record even worse, because making multiple applications in a short space of time looks bad to many lenders.
Consider a tactical application. You're more likely to be accepted if you go for a loan with a slightly higher typical APR. Take a look at our loan partners page, for example. (Although we have partners, you can still compare the whole loan market through us.) This page contains the two cheapest loans on the market, supplied by Moneyback Bank and its owner, Alliance & Leicester. With these, an £8,000 loan over three years will cost you in interest just £778 and £802 respectively.
However, our data shows that just 20% (approximately) of applicants for these loans are successful, because they want the borrowers with the best records. Now compare this with Northern Rock, which costs you £914 in interest, but the acceptance rate is excellent at around and above 40%.
2. Look at costlier loans with more flexible terms
Some loans are flexible: they allow overpayments or a full, early settlement without penalty. Northern Rock's (I noticed when researching point 1 above) is unusually flexible in that it allows as many overpayments as you want for any amount, plus you can pay the whole lot off early.
If you took your £8,000, three-year loan out with them and overpaid by £150 roughly every three months, you'd save about £150 in interest, so that you've paid no more than a borrower with Moneyback Bank. Furthermore, you'll pay off your loan in just two years and five months, so you'll have a seven-month savings head-start. This would be about £2,000 in the bank by the end of year three, if you saved all the money you had been putting into repaying your loan!
You can find more flexible loans through The Fool by looking at the 'Other Charges' column in our comparison tables. Look for the words 'No charges that we know of'. You can then get further information by clicking on the 'Details' button.
3. What happens if you're declined?
Referring back to point one, above, you may be wondering what happens to the 60-80% who are rejected. Well, in addition to having a small mark put on your credit record, you are often referred to secured-loans companies, which will ring to pressure you into buying a loan that may be dodgy and probably expensive, with variable (not fixed) interest rates.
Sadly, we at The Fool can't stop lenders doing this to you even when you take out a loan through us. However, you can stop it yourselves! What you must do, as always, is read every page of the small print thoroughly. There will be a check box to stop the lender passing on your details to any other company. Some lenders make it difficult to find, so click on every link and read through it thoroughly.
4. Ring a company you already deal with
If your credit record is looking pretty rough, you may find that contacting a company which you already have a product with is your best bet. Don't just snap up any old loan it offers you though; think carefully about how much it costs, and consider whether you could do better.
You could always ask the helpful Fools on our Dealing with Debt board if you'd like their views on a loan you're offered.
5. Get a quote with PPI
Payment protection insurance (PPI ) is hideously over-priced when you buy it alongside a loan. A £7,500 five-year loan with the cheapest provider, Moneyback Bank, at its typical interest rate equals £146 per month. If you add to it Moneyback's PPI it costs £185 or £39 more per month. This will cost you an additional £2,340 by the end of the loan!
However, if you buy PPI separately with a provider like SecurityFirst, it'd cost a fifty-year old £332 in total (£5.53pm), and a 25-year old just £153 (£2.55pm). (Some providers make it more expensive for older people as they're more likely to become ill.) These are huge savings of £2,013 and £2,192 respectively!
If you decide to get PPI, make sure you thoroughly read and understand the small print, especially what claims are excluded, to make sure it's suitable. To take just one example, it's less beneficial to self-employed people. Learn more about stand-alone PPI in Ditch Your Rip-off Protection Today!
Thing is, you're more likely to get a loan if you request PPI, because the lender makes so much money from it. So, you could hugely improve your chances of getting a loan if you submit a request for it with payment protection insurance included. Then, as soon as you've got the paperwork, you send it back without signing it and ask for a re-quote without PPI. It would be very difficult for the lender to subsequently decline your amended application. But please make sure you do send it back without delay, or it'll cost you!
6. Watch the APR; it can be misleading
Lenders can manipulate APRs (the annual percentage rate of interest) to make them look better than they are. Therefore, to compare loans you should ignore the APR and instead look at the total amount repayable and the monthly payment. We make this easy for you in our loans centre.
7. Don't let the lender drag out your loan
Finally, the lender may offer you a longer loan than you ask for, tempting you with lower monthly payments. However, you'll pay more in interest if it's spread out for longer, so you should aim to pay off your loan as quickly as you can realistically afford, bearing in mind you still need to have enough money set aside each month to be able to cope with inflation (rising prices) and emergencies.
You might improve your chances of getting a loan by pretending you want to spread out the payments further. If you want to pay it off over three years, get a quote for five years instead. Then, when the paperwork arrives, send it back immediately without signing it, saying that you've changed your mind and want it over three years. They're less likely to turn you down then.
However, they might turn you down, even if they've transferred the loan to you before you've returned the paperwork (which they often do, the cheeky devils). So make sure you don't spend any of the money you've received, or don't pay off any other debts with it, until you've agreed the loan.
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