Funding is important to start or grow your business. Unluckily, it is not that easy to apply and get a business loan. You can’t expect it to be fast or stress-free.
One of the most crucial steps for a small business owner is applying for a loan. Follow these tips for negotiating and getting a business loan if you want to have a good chance of getting your loan approved.
1.Make a research and go to the right banks
According to Alex Espinosa, Founder of BOLD lender and lending consultant, you need to have research about the banks before applying for a loan. Just like any other jobs, banks also have specialties. Find banks that will help you and not waste your time.
Espinosa said that there are different capabilities of a bank. Some are good at restaurants loan while some are good at gas station loans. But many lenders reject those categories. Investigating a bank, looking up every bank headquartered in my country are the things I look up for starting with the smallest. Here is a great website to start finding out what are the good banks. FDIC website.
CEO of lighter capital, BJ Lackland bits of advice to seek capital from multiple sources. In any negotiations, it helps tp In any negotiation it helps to have options, he said to Business News Daily.
2. Know the terminology
If you seem unprepared or not sure about your proposal to them, bankers and lenders will not take you seriously.
According to Paula Garcia, a small business adviser at Excelsior Growth Fund. You both have to speak the same language. Your lender will demonstrate that you understand the process and your responsibilities so lenders will have confidence in you. It can also help you find the best lender that is suited for you. It can also give you warning signs of a potential lender if he may not have the experience you need or maybe predatory lending behaviors. It can both result in a loan that is poorly constructed and also with payment terms that jeopardize your business’s cash flow.
Before applying for a loan, there are different terms that you can familiarize yourself with.
Balloon payment: According to Gennady Litvin, an associate at Moshes Law, The balloon payment is due at the end of the loan to pay the balance in full. This is a balance due that is not paid at the end of a term loan. This is for loan types that do not fully amortize over the term of the loan.
Default: Failure to make the agreed-upon periodic payments on a loan says, Litvin.
Financial Covenants: You need to operate your business with this financial guardrails. “If you fail, you will be in default and under the loan and lenders have the right to demand an advance immediate repayment. Financial covenants can include a minimum cash balance in your bank account, it is a minimum level of asset coverage and profitability of cash-flow ratios.
Loan-to-value ratio: Value of the purchased asset to the ratio of the loan. It is one of the metrics used to evaluate the risk on a potential loan, says Litvin.
Personal Guarantee: Your personal assets are also at risk of you personally guarantee a loan. It is not just your business at risk, but also your properties Lackland said, Tried to avoid Personal Guarantee as much as possible to avoid the capital source to come after your house.
3. You should be prepared
Imagine wearing your wedding dress, you want to look as attractive and as glamorous as possible at want to be presentable. It is just like in preparing for a business loan. You need to be attractive and have a good impression.
The paperwork and what you are going to say is both important. Getting copies of your credit report to help identify any negative items and try to repair or remove them is a good recommendation of Espinosa. It is also important to have a letter explaining the negative items that remain.
Your tax returns for three years, year to date financial agreements and three years of fiscal year-end financial statements are also important.
Preparing your personal financial statement stating your assets and liabilities and your income is helpful. You should have up to six months of bank statements, copies of your life insurance policy, recent broker and retirement account statements, any trust information and any recent appraisals you have done are also important says Espinosa.
Now for the final day that you decide to go to the bank, make sure you and your paperwork are very presentable. It should be neat and organize. “Neatness, grammar, spelling and organization count”. Examples of requests that don’t even get read and rejected immediately are sloppy requests.
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