Since the economic recession in 2008, lending levels at banks have increased moderately. As the economy continues to grow and recover, entrepreneurs turn to banks and other lending sources to help in expanding their businesses to keep up with market demand. As a result of the Great Recession, most banks have restructured their business lending criteria to reflect increased scrutiny of business loan proposals and this makes it harder for business owners to qualify for a business loan. Although it’s difficult to obtain a business loan compared to a decade ago, there are several key tips that can help increase the likelihood of obtaining a business loan.
Tip One: An Existing Banking Relationship
The first tip in strengthening your loan proposal is to have an existing banking relationship. You can exponentially increase the chances of obtaining a loan by applying with a bank that holds either personal or business checking accounts. Banks make money by charging more interest on loans than they pay out for deposits. By applying for a loan with a bank you have deposits with, they can make exceptions to their lending policy based on the longevity of relationship with you. The number one unspoken rule of commerce is people like to do business with people they know, like, and trust.
Tip Two: Present a Clear and Practical Business Loan Proposal
The second tip in qualifying for a loan is to present a clear and practical plan. Can you imagine the number of business loan requests the banker receives on a daily basis? Although most bankers won’t admit this, but they LOVE to receive business loan proposals that are clear and practical. Ideally, the loan proposal should only cover the highlights of the business project in addition to key facts on the borrower. The purpose of the business loan proposal is to spark the banker’s interest to learn more about the loan opportunity and possibly pursue a deal. A key document in the proposal is the Executive Summary because it explains in summary the purpose and intent of the business loan opportunity. This document is typically one page in length with key sections disclosing the loan opportunity, profit potential of the project, repayment analysis, and collateral analysis.
Tip Three: Have a Compelling Presentation
In addition to having a clear and practical proposal, there’s a need to have a compelling presentation to aid in enticing the banker to approve the deal. Bankers are often frustrated with loan inquiries because they have no focus and lack organization. Bankers analyze over a hundred deals a week and most are sporadic phone calls or walk in clients that inquire loosely about loan opportunities with no firm basis of conversation. Clear and organized paperwork are key components in getting the banker’s attention and promptly progressing through the loan underwriting and approval process.
As the economy continues to grow and recover from the Great Recession, banks are re-establishing proper business lending guidelines to help markets expand at an appropriate rate. Entrepreneurs continue to experience difficulties in obtaining business loans, but with these three tips, they can increase their chances of getting a loan to grow their business and increase their cash flow.