Any helpful primers I should know about before I apply for a bank loan?
I want to apply for a small business loan. The banks I have researched so far have pretty tight standards for applying. Is there anything I can show or do beforehand to increase my chances of getting a loan?
Hi Renata - Wais and George are 100% correct in asking their questions. What business are you in and what do you need the money for? The banking world is a different place than it was even 10 years ago especially for small businesses looking to borrow. Collateral has to be stellar or replaced by some really spectacular business history. If you repost some details I am sure there are plenty of us who can give you some good or even great advice - but I'm hesitant to give more here without more details.
Would love to comment on any repost with more details - or PM me and I'd be happy to help. Best regards, Rich V.
Wais is 100% right. Banks should be your last port of call and not your first. Try Business Angels, Venture Capital, Crowd Funding, or even your friends and family before you even consider banks. Banks are expensive in the long run and they will interfere with your business as much as an investor would, without the positive contributions that a good investor will make. Investors have contacts, experience, and ultimately skin in the game so they will do everything they can to help you succeed. Banks on the other hand are driven by their shareholders, markets, liquidity ratio rules, variable interest rates, dividends, etc. and I would give them a miss if you have any other option.
Some great answers here already and I agree with all the points.
As a business mentor and someone who helps entrepreneurs with securing startup investment, there are other opportunities and avenues for raising startup cash aside from the banks, family and friends etc., however, if you still feel a small business loan (depending on the type of business) from the bank is the way to go, here's a checklist (as advised by one of the banks I work with) and in no particular order;
1. Investment Type - What category investment are you looking for? Asset financing, overdrafts, cashflow or operational costs.
2. Industry Sector - for risk assessment, is it a heavy cash injection venture and on what terms.
3.You - Who are they lending to, have they got relationship with the bank already, history,are they trustworthy, what experience(s) do they bring to the table.
4.Abilities - what is their business and is the plan consistent with their pitch? Have they researched their market and what qalifications do they hold - for tgeir proposed trade and last but not least, their ability to sustain the loan.
5. Margins - Again Risk assessment againt reward (ROI),
6. The team or the person(s) - Are they trustworthy, are their intentions legitimate and can that be verified? Compatibiliy with the type of industry they're in - and bolis down to whether they believe you're right for that business (yes - gut feeling comes into play - afterall, you're dealing with people)
7. Why - why do they want the money? Can they rsise it any other way. Is it in line with the business financial assumptions,
8.How - How are they proposing to pay back and is the amount consistent with what they want to do with it?
9. Collateral - how much have they invested already or what stake is there in the business (assuming you already used some borrowed money to get started.)
10. Insurance - Is there an insurance policy in place (ie; Key man cover, Interest rate protection etc.) Securities against lending etc...
Recap - Character, Ability, Purpose, ROI and Repayments - Cash is KING...and finally "gut instincts"
Hope this helps as a starting point - feel free to connect if I can be of further help.
Best of luck..
Research the banks before applying for a loan, Certain banks are more comfortable lending to some industries than others. Also consider community banks which will often be more willing to work with small business in their community
Most banks want to see 2 years of profitable operations as documented by either tax returns or at a minimum "Reviewed Financial Statement' prepared by a CPA. Your personal credit score should be excellent and expect to sign a personal guarantee. Depending on your type of business you may be asked to show a 12 month cash flow statement as you can be profitable and still run out of cash.
Banks working with the SBA can waive some requirements if you qualify or a SBA loan, or meet other criteria for special consideration under SBA guidelines.
If you cannot get a bank line your other choices in somewhat order of cost are: Cash Advance Loans where the lender is repaid daily or weekly by debiting your bank account, using your personal credit cards, or factoring if you have receivables. If you need the loan to buy equipment consider leasing.
Others may have more insight or suggest better alternatives.
Renata, to supplement what Mark stated previously, at the very least you need a rock solid business plan, a lot of expertise and a good chunk of collateral.
I see you are from Houston, I suggest contacting the local SCORE chapter at scorehouston.org. SCORE mentors work with the prospective business owner and the SBA to assure that you won't get blindsided when you approach the bankers for a loan. Also, you may find your funding requirements are lower than you think, or you may not need an initial loan at all.
SCORE is loaded with very experienced people that can help in virtually any industry or discipline and there is no charge for SCORE services.
Best of luck.
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Here are a few items to prepare before applying.
1. Investment Assets Portfolio
2. High Credit Score
3. Established Business Growth and Profits Report
4.Concise Business Plan (A written business plan showing how the loan will contribute to business growth and profit, including how the loan will be paid back over time.)
As a business plan archivist, I have helped hundreds of business owners successfully apply for approved loans and find investment support. For more info regarding pre-written business plan templates view links on my profile.
I am curious why you need a small business loan. Many of the startups I have supported, wanted to get a small business loan. But, after discussing the benefits, costs and other methods to start without a loan they decided not to apply for a small business loan.
Obviously, this depends on the type of business, however, the majority of the startups I supported didn't needed one.
I am curious what type of business you have and for what you need the money for?
I don't know if my response is appropriate, but my intention is help out.
Renata, all the replies you've received are great information though you may want to consider an independent / community bank. They have a vested interest in helping small businesses but since the recession it's become difficult to obtain financing as you know. FinTech lenders may be another option too.
Apply for a direct business loan, with no personal guarantee is very difficult. Even with a personal guarantee, it is an up high challenge.
Business loans and the difficulty depend on your business, products or services sold, personal information, risk, and other factors.
Alternative leading can provide much need gap or bridge to acquiring funds.
First, decide what type of loan you want?
Business Line of Credit
Merchant Cash Advance
Unsecured Business Loan
Business Acquisition Loan
If you decide to go with alternative funding. Please research the company and read the terms of the loan. Beware of Confession of Judgment statements. There are several good companies in the space, but many not so reputable companies.
If you need further assistance feel free to contact us at https://www.cardz3n.com/contact.
I agree with Wais. For what purpose do you need a loan? What is your business?
Apply with your EIN rather than your SSN. You could experience better terms and loan rates plus have a higher chance of receiving a yes.
Yes. Make sure you can prove that you don't actually need the loan before you apply.
Hi Renata, check your capacity to pay back the loan. Florence MacDonald
First, go around to all the banks and see where the good conditions are, let the manager consider you a reward and then have a choice for you. In our country can be set simultaneously in three banks, if file more is considered fraud.
It depends on how much money you need to open your business. The larger the loan, the higher the requirements, logical and understandable. There is an option to split the amount into several small loans and get them in different places.
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There are many things you need to consider before buying a house and applying for a home loan. Below are a few points you should consider before taking the taking a home loan:
Know you loan eligibility:
The loan amount to be sanctioned by the banks depends on your past record of repaying loans and credit card dues and your income. How much amount you can spare to pay the EMIs from your stated income? Before taking up the loan, you should be clear in your mind of the EMI you are willing to doll out every month.
Usually banks give loan up to 80 percent of the total cost of the property but that is not sacrosanct.
2. Check your credit score:
Check with Credit Information Bureau India Limited (CIBIL) to know your credit score. It gives you a credit score on the scale of between 300 and 900 points. The points are given on the basis of your credit card bill payment, bank account statement, existing loans or liabilities, loan repayments and how many times you have applied for loan till date.
If you are paying the processing fee to at least three to four banks to know your maximum limit, then you are considered 'credit hungry' in the eyes of CIBIL and your chances of getting the loan reduces.
3. Chose your lender:
Do a detailed research to find a bank or financing company for home loan. I suggest go for some reputed financial services provider like Credit Nation instead of Checking 4- 5 banks to know their terms and conditions of offering a loan, interest rate and tenure. Financial portals like Credit Nation have reduced hectic task of loan process. They help you comparing rates provided at diff diff banks and also help you look at other important aspects as well.
4. Type of interest rate:
There are two types of interest rates on loans - one is fixed rate and other is floating rate. In case of home loans with fixed rate of interest, the amount of EMI does not change during the tenure of repayment while in the latter it changes along with the change in interest rate. It is good to have floating rate if interest rates are expected to fall in near future.
5. Tenure of loan:
The amount of EMI is inversely proportionate to loan tenure. If the loan tenure is long then the EMI amount will be low and if the loan tenure is short, the EMI amount will be high. So weigh all your alternatives before finalizing anything.
6. Know about Extra charges need to be paid:
Get complete information about the extra charges that you will have to pay to take a home loan like processing fee, service and administrative fee, etc. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home.
7. Read the document of agreement:
Read the complete document of the loan agreement before signing it. Yes, they can be quite a handful to read in one go, but take your time and read every word carefully to ensure that all the terms and conditions are the same as what you agreed upon. Again taking help from the Financial Service provider is quite helpful and again I would recommend Credit Nation as it is one of the most reliable and trustworthy portals for every kind of loan.
I suggest ICICI bank for a loan because they are best as per my opinion they provide loans at the lowest rate and here you will get all the detail of ICICI Bank Limited.
Hope this will help.
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