A lender will only provide you with the necessary funds if they are convinced your business is a worthy investment. They will not approve your loan if you cannot assure them of your financial stability and security. After all, a lender does not earn anything a loan which remains unpaid and just like you, they are after a profit.
There are different techniques you can use in order to improve your chances of getting your loan approved. They are explained below in some detail.
- Carefully consider how much money you need and what type of security you can offer. Prepare yourself so you can answer the difficult questions.
- Find the bank that is right for you. Select two or three banks, explain your needs and find out whether they are interested. Make sure you do not use the same bank as you use for your saving accounts – they could put pressure on you to use your personal assets to pay off your business loans.
- Prepare a detailed business plan (including cash flow forecast) (link) with your accountant and discuss it with your lender. Your plans must reassurance the lender whilst still being accurate and realistic.
- Ask for a larger loan on a longer period of time than you actually need. This provides you with a margin for negotiation and error. You do not want to go back to the back in a few months time only to go through the same process again.
- Produce a one to two page summary of your business plan (link) which outlines its most important points.
- Send your business plan summary to your chosen banks and invite them for a discussion on your business premises.
- Treat your lender as you would a major potential customer.
- Don’t start negotiating about interest rates until the lender has indicated the possible terms of offer.
- Make sure you understand the ABC of borrowing. Familiarise yourself with loan procedures – and particularly, with the nature and meaning of different types of security. Try not to agree to unlimited guarantees. Instead, offer a guarantee with an upper limit equal to the amount of the loan less the other security available.
- Get everything in writing – verbal agreements are worthless.