When it comes to fulfilling a financial requirement for a business, be it short term or long term requirements, bankers remain the main source of finance and expansion. However, because a bank has the money and the businessman wants or needs it, in most instances this leads the businessman believing that he or she has no leverage to bargain for a loan. They literally throw themselves at the feet of the banker. But this need not be the case.
What to do before applying for a loan
Do a lot of research into the loan application and disbursement process before applying for a loan and get a thorough understanding of it. If you do not attain a fairly good comfort level negotiating for loans for business, get professional help from an accountant or an attorney. In addition, your banker may not have any knowledge about your industry so help him understand your business and make him understand that your business has a great future.
Include basic financial and business information in your application. Include a financial statement that is not older than 90 days. Also include taxation statements for the last 3 years. This will save a lot of time and seeing the financials, the banker will be more inclined to consider the application for a loan.
Show him you can repay the loan
Present the banker with financial forecasts and debts that have been repaid, if any. Include a balance sheet that reflects some collateral for the loan. Timely repayments of past loans will hold you in good stead and almost assure you of the loan.
Show the banker that as your business grows the additional assets will be added collateral towards the loan. Review your financial projects a couple of times to make sure there are no loop-holes a “devil’s advocate” will be able to play on. Ask financial experts to review it for you before submitting it. In fact, try to come up with a summarised view of the financial statement. These are cheaper and as effective when it comes to convincing the banker.
The banker may try to prevent the borrower from selling any of the assets that have been put up as collateral for the loan. However, the borrower should negotiate with the bank to be able to sell any asset in consultation with the bank in order to repay part of the loan.
Interest and premature closure of the loan
When you negotiate with the bank remember that banks make money by lending money to businesses and individuals. If your business plan is water tight the banker will need a fairly good reason to present to the management as to why they refused your loan. So, do not feel that you are begging for money. This is a normal business deal. So never give the banker any reason to refuse your application. If you have a perfect business plan and the collateral to put up for the loan you should get your loan.
Also, take care when it comes to deciding the tenure of the loan. They will try to extend it as much as possible. In the long-term your business could be affected by many changes such as political unrest and natural calamities etc. Try to get a 5 year term or preferably less.
Ensure there are no fines or fees involved with closing the loan early and that you can repay huge chunks of the loan as and when you come in for cash and that there are no hidden fees involved with such payments.
Lastly, ask for a loan like you don’t need the money. If you look desperate the banker will be uneasy at the thought of lending you money.