Lets face it, if you dont have a proven track record or some notable credit worthiness, it is tough to get financing. Risk factors and high costs of servicing small accounts are the major reasons for banks and financial institutions to stay away from people who dont have a good credit history.
However, the silver lining in the cloud is – business finance, small or big, is the bread and butter for banks and other financial institutions. If you can convince them that you are a good investment opportunity, you are on!
Following tips might make your application irresistible for banks or other institutions.
1. Be Thoroughly Prepared: You need to satisfy the lenders regarding your track record and your future viability. The documentation required for this has been discussed in my other article All About Small Business Funding.
If you are just starting out, you need financial projections for at least next three years.
A financial projection typically comprises of:
Estimates of your income and expenditure
Working capital estimates
Cash flow statement
Projected Balance Sheets
Precise loan utilization detailing
Profiles of decision making people i.e. top management who would be handling the project(s) for which you need financing
Comprehensive business plan
Some of these documents require professional expertise and you would need a professional accountant to prepare them.
You would also need the following documents apart from above mentioned documents, if you are already an established business and want a small business loan to fund your working capital requirements or your expansion plans.
Copies of the Balance Sheet, Profit and Loss statement, and tax returns of the company
Personal financial statements and tax returns for last three years
2. Anticipate Questions: You need to be well prepared, and need to have a fair understanding of the lending process to anticipate questions you are most likely to face.
Remember, lenders need to be convinced about your loan repayment ability. Ideally your business plan should also include answers to your banker’s questions. The most frequently asked questions are:
How much money do you need? Be exact! You can add a little extra for contingencies.
Long term or short term? Be prepared to go into detail supported by your documents, the time you require to repay the loan.
What are your loan utilization plans? Explain whether it is for capital expenses, working capital, and expansion or to set off old debts.
How you will repay it? You got your cash flow projections here to explain repayment time frame. Use your financial projections and business plan to convince the banker of your repayment capability.
3. Dont Be Apologetic: Remember; banks look for good opportunities to invest. Be confident that you are one of the better opportunities the bank has come across and project that confidence to the banker. It is a deal on equal terms. Banks are not doing you any favor by giving you a loan. You are giving banks good business too. You are an entrepreneur who can and will repay the loan.
4. State the truth and back it. Bankers are very smart people. If you make any unsupported grand statements, take my word, they will see through it, and you will come out looking as someone who is desperate for a loan. And bankers dont touch such people with a barge pole! Better idea is to keep your projections, documents, figures and your statements on the conservative side. You will cast an impression of a cautious and methodical person.
5. First impression is the lasting one. Dress in a professional manner for the interview. All the loan documents must be typed; handwritten documents look unprofessional. This is a business transaction, so treat it as such.
Last but not the least, a word of caution: getting approval for a business loan is good and you are almost through to your path to realizing your dreams. But don’t forget to read the fine print. Loans have hidden costs such as: annual fees, bank charges, closing costs, commissions, and balloon payments. So stay focused and clear-minded about these riders during the loan process. Be sure about your goals, keep focused and work according to the plan. Your small business finance requirement may turn out to be just the dose you needed to turn your dream big!