A lot of entrepreneurs will require external funding to fulfill their dream of owning a business. In this post, we will provide five tips for getting a loan with the best terms when starting a business.
1. Be Ready- Your first impression matters. Handing in a “bank-ready” request can go a long way in determining whether a banker wants to approve your loan application or not. Here are what the banker wants to see when they look at your financing request:
- Loan amount
- Loan purpose
- Kind of business
- Main collateral and loan to value
- Debt service coverage
- Debt-to-worth ratio
- Management experience
- Credit score
While the loan summary can help you get funded, you should be ready to provide proofs that support the information contained in this summary. Nowadays, entrepreneurs are heading to online loan platforms to get all the tools needed to make and submit “bank-ready” applications to interested money lenders.
2. Spread your net wide– When you are borrowing money to set up a business, you want to ensure that you get to the best terms for your loan (lowest interest rate, lower monthly payments, longer term, etc.). That’s why you need to reach out to as many moneylenders as you can.
However, borrowers waste valuable time and money (printing and postage costs) each time they submit a loan application at a physical bank. They also receive a credit report at the end of each application, which can reduce the owner’s credit rating.
By heading to an online loan marketplace, business owners can have the chance to spread their net wide and get in touch with multiple lenders who won’t look into your credit report until both of you are ready to take the next step. Reaching out to many moneylenders can help a business owner secure better terms for their loan.
Some of these online loan platforms offer tools that give business owners links to get their credit scores without affecting their credit ratings. They also have tools that can help borrowers create a detailed “bank-ready” loan request and a template for making a Business Plan.
3. Be realistic and put yourself in a banker’s shoes – When applying for a business loan, you have to be realistic and see things from a banker’s point of view. Ask yourself the main questions a banker would ask: Does the business have a clear plan to repay the loan? Is there a fallback position if things don’t go as planned? Does the borrower have good credit history and experience managing businesses? Is the borrower also putting up any money?
4. Respond on time – You should expect several inquiries from a potential lender before your loan application is approved. It’s crucial to reply to these questions as fast as possible. Bankers get a lot of loan requests to deal with. So, if you don’t respond to a banker’s inquiries quickly, they may lose interest in your application, and your motivation to get funding may wane.
Late replies from the borrower can make the banker ask questions like: Does this borrower really want this loan? Should I spend my time investigating this business, or should I proceed to the other ones? So, it’s in your best interest to reply quickly to any questions you get from your banker. 5. Sell yourself– Bankers never run out of borrowers seeking funding for their businesses. Business owners who secured loans were able to show the banker that they and their business were loan worthy. Although financial analysis is key when making a loan decision, it’s also important that the borrower sells himself and his business to the banker. You can achieve this by presenting a detailed and clear vision of your business (maybe in your business plan) while interacting with the banker on the phone and in person. If you have faith in your business and its future, you need to ensure that the lender sees it
