If you’ve ever been denied a loan, as many small business owners have, you’ve experienced a feeling of unworthiness. Why am I not eligible? What have I done to damage my credit? Why don’t I deserve this money?
Chances are, you do. In fact, you may have flawless credit history and the most noble of intentions, and still find yourself facing rejection. This is because, contrary to what we may believe, banks are not overflowing fountains of wealth. Even their funds are limited, and they can’t always provide—even to those most deserving of clients.
As if securing a loan wasn’t difficult enough. Not only do you have to worry about being worthy of it, you have to set yourself apart amid a crowd of individuals who are. Here’s how to do so:
1. Get organized
Walk into a loan meeting empty handed and that’s likely how you’ll leave. A great deal of work goes into securing a loan, much of which should be done before you even make your request.
The first step is reviewing your company records—has your business been profitable for at least three years? Most lenders won’t consider you otherwise. Make sure to also review your credit history and be ready to explain any potential red flags.
If you’ve been in contact with a lender, he or she has likely provided you with a loan application. Bring this to your meeting (obviously) along with hard copies of personal financial statements such as tax records. Banks tend to request these documents and will be pleased if you have them at the ready.
This first step is essential—the ability to plan and prepare is evidence of business aptitude that will shine through to your lender. Arriving with all your documents in order will save your lender time and time, we know, is money.
2. Make your case
You’re in need of money. If you weren’t you wouldn’t bother to request a loan. Make your lender see this; reveal to them why you need their help. Don’t be vague when explaining what the loan is for; tell your lender specifically what you plan to use it to accomplish.
Also highlight the effect not getting the loan will have on your business. Will it force you to fire your hardworking interns? Result in you spending even more time away from your family? Your lender is a person, and as people we relate to stories, not numbers. Tell him yours and he’ll be more inclined to help you.
3. Offer something in return
Would you offer your friend a $1,000 loan without reassurance he would pay it back? Most likely you would not; and if so, for the sole reason that he is your friend. Banks don’t have this incentive. They lend to strangers and are bestowing on them much larger sums. As such, they most often require collateral.
Make sure your business boasts enough assets to secure against your loan. If not, you may have to personally guarantee it.
4. Stay local
Last but not least, as this is the easiest tip to implement: seek out a local bank when requesting a loan. A recent article from Inc. upholds doing so as a chief way to improve your chances of securing a loan, and for good reason.
Local banks have fewer clients which mean fewer people competing for financing. They’re also more likely to hear you out. If your credit report raises red flags or your business has only been profitable for the past 18 months, a national chain will likely trash your application automatically. With hundreds pouring in, they don’t have the time to listen to your explanation.
Another perk of using a local bank is you’re more likely to have a connection to your lender. This is especially true for small communities. Perhaps you belong to the same organization or your sons play on the same baseball team. If so, your lender may be more inclined to prioritize your request.
Need help getting your finances in order before applying for a loan? Our outsourced accounting and CFO services experts can help.