Are you about applying for a bank business loan for the first time? If YES, here are 10 guaranteed tips to increase your chances of getting a bank business loan.
Getting a loan from the bank can be a very long, tedious process which can very quickly go the wrong way if not handled well. A lot of people have gotten rejections because they didn’t prepare adequately before applying for the loan. Before you apply for a bank loan, you need to prepare well and here are 10 tips to help you prepare and increase your chances of getting that bank loan the next time you apply.
10 Tips to Increase Your Chances of Getting a Bank Business Loan
1. Learn about the loan process-: First you have to understand the loan process and how it works and also understand what the bankers look out for before they approve your loan. Bankers try as much as possible to reduce risks and protect their capital as well as other people’s money entrusted with them.
That doesn’t mean that they want to keep all that money in their vault in order to keep it safe. They also need to make some profit too through earning interests on the money they have in their care and to earn interests, they have to lend the money out.
But while lending the money out, they also want to ensure that they can recoup their capital back and also get the interests. That is what forms the basis of loan approvals. Before a bank can approve your loan, here are some of the things it would look out for:
5 Factors Bankers Consider Before Granting your Business Loan Request
- Your reputation-: The bank wants to know what your character is like. Are you a chronic debtor? Do you have bad credit history? What are your past performances with previous loans like? Are you stable financially and job wise? Can you commit to returning the funds after you get it?
- Your financial capacity-: The bank would want to know your financial net worth and also want to know if you have enough income to repay the loan.
- Your business plan-: If you are taking a loan to finance your business, the bank would want to know how viable the business is/will be.
- Economic Conditions-: The bank would also consider the economic situation of the country or state that you live in. If the bank suspects that a recession is coming, it may be forced to withhold his funds.
- Security-: When your loan is backed with a collateral security, the bank would be better assured that it would get its funds back come what may.
These are the basic things that would determine if your loan would be approved or not.
2. Get a grip on your credit history-: Before you apply, it is important that you check your credit score first. You may think that you have a good credit score because you have never obtained a loan but other factors like how fast you pay your telephone or other utility bills, your credit card balances and several other factors also count. Ask for your free credit report and if you discover that you have a poor credit score, take steps to improve it before you apply for a loan.
3. Put all documents together-: Before you apply, you should find out all the documents that you would need to back your applications and put them in order. Some of the documents that you would need include your bank statements, your evidence of tax returns, paychecks, driver’s license, and company incorporation documents to mention few.
4. Build a relationship with the bank-: Banks are less likely to hand out loans to new customers than old customers. A bank would expect that you would maintain an account with it for at least six months so before you apply for a loan from a bank, ensure that you have maintained the account for a reasonable length of time and ensure that the transactions in that account can justify the amount you are seeking for.
5. Write an Excellent Business Plan-: Banks would usually ask for a business plan when you are applying for business loans. If you present an excellent business plan that would prove to your bankers that you really need the loan and you have the necessary knowledge required to manage the funds, you would automatically increase your chances of getting your loan approved.
6. Have Specific Needs-: Some people get turned down because they are not clear about what they want. You say you need a loan to buy a house that’s worth $75,000 yet you are applying for a loan of $100,000 without specifying what the excess of $25,000 would be used for. That may also lead to your application being rejected. When applying for your loan, ensure that you do enough research and get a grip on the exact things that you need the money for and the average market prices for those things.
7. Reduce your debts-: Few months from the time that you are going to apply for your loan, make an effort to reduce outstanding debts. This would go a long way in showing your potential lenders that you are credit worthy.
8. Look for a co-signer-: If you have poor credit score and still really need to obtain a loan, you may be able to increase your chances by getting another person with a solid credit history and creditworthiness to act as a co-signer of the loan with you.
9. Approach smaller banks-: You may also be able to increase your chances of getting a bank loan by approaching smaller banks especially community banks. These banks have flexible lending policies compared to commercial banks.
10. Be a faithful borrower-: Let’s assume I am your closest friend. If I came to you to borrow to you to borrow your most prized possession, maybe your most expensive diamond jewelry or luxury car, you are going to think very hard about it before you give it to me wouldn’t you?
Your thoughts would probably go like “can I trust this person to return it?” “Will I regret lending my stuffs out to this person?” Now, what if I return it in good shape and borrow it several times and return it in excellent shape too, would you still have a hard time lending it to me?
That’s how banks and loans work. When you prove yourself to be able to commit to returning money you borrow and paying off debts you owe, you wouldn’t have problems convincing banks to loan you money anymore.