5 Simple Ways to Trick your Bank into Giving you the BUSINESS Loan you need!

The word “trick” may be an inappropriate term to use to educate you on this subject. However, I am more than certain that even though clients never explicitly use that word when trying to apply for a loan, that is what they eventually try to do in order to persuade us Bankers into risking depositors funds.

A trick or not a trick. It all depends on the rule of the game and here are five simple things you need to need to be thinking of when applying for a loan!

Before we get into the five things that you need to be thinking of, lets get started with a few C’s Banks consider strongly before indicating an interest (NOT approve) to give you a loan. Call it the Banker’s lending creed or the bible. If you check all the boxes convincingly, then you have a 50% chance of tricking your Bank into giving you a loan.

Character— What is your history of repaying your loan. Essentially what is your credit report saying?

Capacity— Simply put, this is your total debt to-income ratio. The higher this number, the higher the chances you may be unable to pay back your loan.

Capital— Do you have enough skin in the game? If you face new or severe regulation, stiff competition, change in government policies or even a sudden downturn of fortunes in any way or form be it political, social, economic etc. is your equity sufficient to weather any drastic change of event?

Conditions— What is the purpose of the loan. How does the amount impact the purpose? What is the optimal rate that balances your risk and the reward? What is the overall micro and macro conditions of the business environment within which this loan will be utilized?

Collateral—Should all the Bank’s analysis go wrong, is there something else tangible and of value the Bank can hold on to that gets you to pay the loan. Call it a form of security.

Assume you come up short in all these, here is the easy way to go about this trick.

Know this – Cashflow is key.

Set out a one-year period (reasonably before you apply for a loan) in which you must begin to get your acts together. Within this time, you want to show the Bank that you can generate as much cash as possible.

1    SHOW A VERIFIABLE EVIDENCE OF YOUR REVENUES

The evidence that comes with your revenue level is invaluable. It should come with your Bank statements or your tax documents or your inventory purchase receipts or your sales receipt. Because your inventory and sales receipt are more of internal documents and may not be exceptionally reliable, I would advise you stick with bolstering your Bank statement. Run your bank account. Put all your sales proceeds in your bank account, make all your payments from your bank account. Avoid cash-based transactions as much as possible.

2.       DRAW UP A CASH FLOW. MAKE A SIMPLE FINANCIAL STATEMENT

In that one-year period, you also need to begin to draw up a cash flow. Do not try to do anything complex. Make it as simple as what make in sales versus all your expenditures that resulted in making that sale. Remember the numbers you present to the Bank must sync with your verifiable sales level. If you put in growth projections, always state the reason why you have done so. Are these growths related to any confirmed orders from verifiable buyers perhaps tied to an on-going contract? Can this projected growth be seen on your month on month numbers in that last one year we talked about? Remember, these numbers will be crunched by the Bank for a worst-case scenario. The Bank generally assumes you are being overly optimistic. Where you can, get an accountant to draw up a Balance sheet and income statement.

3.       WHERE IS THE COLLATERAL?

Yes. Providing a Bank, a collateral that is easily realizable and of value is the elephant in the room. Because collateral can both be tangible or intangible, a client like Bill Gate or Mark Zuckerberg can take a billion-dollar loan by just signing a personal Guarantee and you probably cannot get a ten-thousand-dollar loan by doing the same. So how do you present a collateral when you are just starting up.

One you can utilize the one year period we talked about to build a small base of tangible assets. You can assume the either assume a risk, transfer your risk or share your risk.

·         If you sell inventory on behalf of a major manufacturer, you may ask the manufacturer to provide you a letter of comfort on your behalf to the Bank. The Bank may in addition that that take a less bullish approach in focusing on getting a collateral off you.

·         If you are a contractor with a larger corporate business, you can ask the manufacturer (with a better risk grade than you) to sign a domiciliation of contract proceeds with the Bank.

·         Or overall, you may ask an estate valuer to value and assign a value for your assets for which the Bank may take a debenture on both the fixed and floating part of these assets. Things like your office equipment, machineries etc. will count as fixed, while things like your inventory will count as floating.

·         You may speak with an Insurance company to provide you with a bond. 

4.    WHEN YOU MEET THE BANK, LET YOUR SKILL AND PRESENTATION EXAGGERATE YOUR OPERATING HISTORY, YOUR BUSINESS ORGANISATION ETC.

·         As a lender, a small business owner that pays himself/herself a salary is a good start. It tells me the business does not mix with pleasure!

·  A detailed organizational structure, functions, staffing duties, proper tax documents, documented SOPs, payroll are good signs of an organized business. Try to get on board!

·     It’s not the end of the world if the loan you are applying for is for a new business venture you do not yet have sufficient experience in. That happens. All you need do is show that your current business cashflows can take care of repayment from this new business should anything go wrong.

·        Call the Bank less after your presentation. Repeated or incessant calls are red flags and signs of desperation. If you say a loan is urgent on a first meeting, please be aware that if it does not get approved within 30 days you may have dug yourself into a hole because you have demonstrated to the Bank you don’t have options and no one would lend to you anyway.

5.       DON’T PUT YOUR EGGS IN ONE BASKET. DIVERSIFY YOUR BANKING