The other day, a business colleague asked me to help with a few basic banking questions. It made me realize the mightiest of men are often intimidated when filling out a loan application. An air of mystery surrounds the process, and yet, as a former banker, I know how a few small touches can bring down the stamp that says approved, versus one that reads denied.
A lender looks at a loan request in three sections known as the “three C’s”. They are:
- Credit. Did you pay previous lenders back as contracted?
- Capacity: Can you afford to pay back this loan?
- Collateral: If you don’t pay back the loan from what asset can the lender recover their principal?
In other words, is the borrower not only able, but willing to repay?
Here are a few simple steps to ensure your application gets a closer look — Step one:
1. Pretend you are the lender, and you need the money back as soon as possible. Look at your request through those critical eyes. Identify your strengths and weaknesses in the “3 C’s”. Identify your loan to value ratio. If you have reason to believe that your credit is less than sterling, get a copy of your credit report including your credit score. Explain in reasonable terms why your weak credit score was a temporary blip, and not a permanent crisis. Do NOT use dramatic language, be practical and precise.
There are variances in each lender’s criteria, but all will charge higher finance rates with lower strength in the 3 C’s. Step two:
2. Identify lenders who match your level of borrowing and are familiar with your industry type. Call lenders to get their criteria. Find out who others in your industry used for financing. Make a priority-list and apply in order from the highest to the lowest.
3. If you cannot find lenders on your own, consider hiring a commercial mortgage or loan broker. They establish relationships with lenders and make use of the relationship as they work on behalf of their clients. Think of them as a salesperson for your project, or like your own celebrity or sports agent. Just remember — their time and expertise cost money.
And be careful – in many areas there is little or no protection under the law for commercial transactions. While a small upfront fee for out-of-pocket expenses is reasonable, shy away from any that want large upfront payments. If they can deliver on their promises, they will be paid very well at settlement. If they can’t do the deal, they shouldn’t take your business at all.
4. Become an expert salesperson for your project or industry. Know your numbers and be ready to defend them. Understand your target market and speak competently about it. Know your competition. Most importantly, know your strengths and weaknesses as a borrower, and maximize the strengths and minimize the weaknesses.
5. Don’t give up. Employees in today’s financial field are overwhelmed with loan demands. One lender might have too many loans of your type in their portfolio, but the next may need exactly your loan to meet their quota. A good money match is like a good marriage, sometimes you have to date a few before you find the right one.
6. Prepare a dynamic business proposal to go with your loan application. (More on that tomorrow). Whether you are a Fortune 500 corporation, or a sole-proprietor running a one-man-show, your presentation can make the difference between yes and no.
7. Sometimes no is a great thing. I worked in a conservative bank and often had to turn potential borrowers down. It always stung, for me and them, but I explained that saying no was a way of doing them a favor. Through the years, more than one person has thanked me for the denial. Increased debt will not lighten a heavy load. Too often, it breaks the backs of those who carry it.
For the next couple of days, we’ll talk specifics. But remember, a good presentation and strong “C’s”, will help you get financing. Feel free to email me with additional questions.
Anita FreshFaith @ Work
Anita Agers-Brooks is a Business Expert, Certified Personality Trainer, Communications Specialist, speaker, and writer. She lives in Missouri.