How to succeed in getting a Bank Loan for Your Business?

During my daily interaction with business owners I hear horror stories of how the global financial crisis has made it extremely difficult for business owners, in particular small to medium enterprizes, to obtain a bank loan. Without previous track record and an outstanding credit rating, securing a business loan is virtually impossible these days. Business owners are forced to pay high premium in the form of unrealistically high cost Lo Doc or expensive
Credit Line loans. Nowadays, entrepreneurs feel that holding on to their business is like holding fire in their hands. But things don't have to be this way if entrepreneurs learn how to preempt their business' needs. Unfortunately, in the process of trying to make a living most business owners forget to design their lives and their business goals. Needless to say that the best time to approach the bank for a loan is when your are in good financial position and not in desperate need for the funds. That's why you have to be proactive
by forecasting your needs based on sound business planning and a purpose statement with defined milestones.

To succeed in getting your loan, you must first tick the following boxes of the Six Cs of Credit:

1. CHARACTER
§ Demonstrated by verifying how you handled your credit in the
past.
§ Have you paid your bills on time?
§ Your credit report is key. Obtain a copy of your credit rating
report from the various credit agencies
§ Educational background and your experience in the business will
count

2. COLLATERAL
§ Collateral are guarantees and additional forms of security that
you may provide the lender.
§ Giving the lender a collateral means that you are pledging an
asset you own with the agreement that it will be the repayment
source in case you fail to repay the loan.
§ Personal Guarantee is just that: You or someone else signs a
guarantee document pledging to personally pay if your business
can't.
§ Both the personal guarantee and collateral might be required to
secure the loan.

3. CAPITAL
§ It is the money you personally invested in the business and it’s
an indication of how much you have at risk should the business
fail.
§ Lenders expect you to have contributed to the business with your
own assets.

4. CONDITIONS
§ Describe the intended purpose of the loan; would it be used for
a working capital, additional equipment, inventory, business
expansion or property purchase etc?
§ The lender will also consider local economical conditions and
the overall economic climate both within your industry and other
industries that could affect your business.

5. CAPACITY
§ Capacity of your business to repay is the most critical of the
Five Factors as it is the primary source of repayment.
§ The prospective lender will want to know how you intend to repay
the loan
§ What the bank will consider?:
o Cash flow forecasts from your business activities
o Timing of the repayment
o Probability of successful repayment
o Payment history matters on existing credit relationships

6. COMMUNICATION
§ Connect with your bank manager and get to know him or her very
well
§ Convey your purpose and message in a way they can understand,
and present your business in the best light.
§ Ask for feedback if your loan application is not successful….
and follow up.

The Loan Process...

1. Remember that your bank is a business!
o Banks need to make loans to stay in business.
o Don’t be afraid to ask!

2. Choose the right bank: Look for a bank familiar with your industry
that has done business with companies like yours and is active in
small business financing.

3. Do your homework:
o Things to bring
1. Tax returns from last two years
2. Personal and business financial statements including cash
flow and budget forecasts
3. Your business or operational plan. Be careful here as good
bank managers look for business alignment. That's to say
they want to ensure that your business strategies and
business goals including your market research are aligned
with your financial forecasts!

4. Be prepared and confident: Know the answers to the most commonly
asked questions including:
o How much money do you need?
o How long will you need it for?
o When and how will you repay it?
o What will you do if you don’t get the loan?

5. Minimize your bank’s risk: Your bank will discuss risk with you to
make sure you planned for potential challenges and have solutions
to manage them.
o Thoughtful answers to the previous questions (4) can help secure
your loan.
o Remember that the first loan is the hardest to get.

6. Maximize the Success of Your Business Proposal
I. Don’t inflate the value of your business assets.
II. Don’t think that Cash Flow reflects actual profits
(Banks look at Net Profit rather than cash flow).
III. Don’t rush it, and don’t ask for more than you need

Good luck with your efforts