How do you convince a bank to give you a loan!

[Mellorando]

Your business is expanding, so you need to buy more equipment and fund increasing accounts receivable balances. How do you convince a bank to give you a loan for your business needs?
First, give the bank a business plan. Show them that your business is solid and you have a strong track record of performance. Convince the bank that you don't really need their money, but if you had it, here's what you could do with it. Banks get queasy about lending to desperate borrowers. Be specific about how much money you need, what you will do with it and how you will pay it back.

*Summary of the business and its
products and services
Experience of the management team
Competitive environment
Target market
Financial statements.
After the banker understands your business, the purpose of the loan and the method of repayment, he will evaluate the bank's risks by using the five Cs:
Character
Collateral
Capacity
Capital
Conditions.

Let's consider each and every one of these Cs:

1 The Need for Collateral
When a bank makes a loan, it determines a plan of how the borrower will repay the loan. If the borrower defaults on the loan, then the bank falls back on the collateral. A lender never wants to use the collateral to repay a loan, because the sale of the collateral may not be enough to pay off the loan. Banks like to take property and assets as collateral as a way to recover their loan in the event the borrower fails to pay as planned.

2 Capacity to Repay the Loan
The borrower must show that he can repay the loan out of the company's cash flow. The bank will analyze a company's debt-to-income ratio and the amount of its free cash flow. Lenders like these ratios to provide a cushion in case the business takes a downturn.

3 The Need for Capital
Banks feel more comfortable when the owner has his own money invested in the business. Lenders like to know the owner will lose something if the business fails. If the owner is not investing in his own business, why should the bank? Banks like lending to companies with a lot of capital because it means the owners have some "skin in the game." When owners have more personal capital in the business, they will fight harder and sacrifice more to save a business and repay their debts.

4 Overall Economic Conditions
Beside analyzing the borrower, bankers will look at the overall economy, industry trends and even the direction of politics. They are thinking about factors beyond the control of the business owner that will affect the performance of the company.
It is almost impossible to start a new business and finance its growth solely with internally generated funds and owners' capital. At some point, small business owners will have to approach their banks for loans. Understand the process that bankers go through to evaluate their risks before you apply for a loan.

 

[Richee84]

Ur analysis above is a very good one with the 5Cs u have used. Ordinarily is not that easy to approach a bank and get a loan from them. All the five qualities listed above will have to be consider by the bank management before they will give their approval to the loan. To me the most critical quality I think the bank will consider is the Collateral security the person have on ground that can be use to repay back the loan in case of any default from the borrower. Banks are always mindful of not running into a lose.

 

[Alexandoy]

In our country banks have the basic requirements for the loan applicant - capacity to pay and willingness to pay. The capacity to pay is evidenced by the taxes that you paid to the government. Banks don't deal much with the financial statement of the business because it can be doctored. But with the taxes it is clear how much you had earned. The required is at least 2 years of tax payment. With the willingness to pay it is debatable but it is good if you have a past loan that you had earnestly paid. That is a clear proof that you have the willingness. Depending on the amount and type loan the bank would require a collateral. The best collateral is real estate because that is what banks want. You get the priority of approval if your collateral is your home or your business place.

 

[btaliat]

There are many factors that banks always consider before giving out loans to the applicants. There is need to check whether the applicant is a good customer to their banks. They check his past record to confirm whether he has s good credit score. For an intending business owner, they may likely to see the feasibility study of his intending business. They may want to comfrim the viability of the business before giving out loan. There is need to consider the financial record of an existing business to know the strength of the business financially before securing loan. Collateral also plays an important role when it comes to convinction of banks for loans.

 

[Caramelle]

The 5 C's of credits are the usual criteria that banks use to evaluate a company's eligibility for a loan. Character is often evaluated based on the loan applicant's perceived willingness to pay the loans based on past actions towards previous loans. An applicant who pays on time all the time will have a better chance of securing approval for a new loan.

Banks will normally review the company's financial statements to see if the ratios match up to its standards. They will usually look at the current ratio to determine the bank's liquidity and capacity to meet payments when due. Positive income figures, as well as cash flows, are strong indicators of a company's financial capacity.

The value of the collateral should exceed the amount of the loan to provide allowances for significant reductions in its value as well as to make up for the collateral's non-liquid nature.

Banks are more likely to grant loans if they can see that the owners have substantial investments in the business. A quick look at the debt to equity ratio can reveal the extent of owners' equity versus that of the creditors.

Finally, banks will be interested in the prevailing economic conditions in general and in the specific industry where the business belongs.​

 

[Kingsley]

Convincing a bank to grant you access to their loan facility may look simple but it is not as easy as it may sound due to the documentation that will be required from you by the bank. And they have a very rigorous procedure they use in evaluating their client that is coming forward for the loan.

So for to win their heart you must do your home work very well, by having a critical understanding of the business you are intending to do or the one you have started. Then you need to prepare a proposal and it will contain all the income statement and your flow Statement and comprehensive income statement. To prove to them your business has doing so well and all you need the money for will be for expansion or to start up a viable business then those statement will be projections.

Another thing you will have at the back of your mind is having a collateral or a guarantor that will stand in for you just in case there is any form of default in the payback period.

Then one should also consider having everything backed up by law one can get a lawyer to assist you in the process although it not basic.

 

[Abigael]

Those are very important points that banks consider when lending people loans for business. They are usually really strict at looking at the plan you have for your business. Therefore, you should show that you know exactly what you are doing. That is, show them that you will make good use of the money that they give. I like that you mentioned that they won't give loans to desperate business people. They need you to show that you can stand on your own without the bank. That assures them that you are not a broke person that will lack means of paying back the loan.

 

[Kendy]

Banks do not work with words of the mouth convincing rather bank works with facts. No matter the level in which you're able to talk or you're coin your words, there is no bank that will just dish out loans to you, if your credit history is not up to a level they can be guaranteed then your loan application is likely to be terminated. It is not possible to just convince a bank to give out loans to you without having the necessary document or the necessary collateral to tender. In fact, banks do not give out loans to students who do not have a feasible source of income except it is empowerment grants or education loans which in most cases comes without interest rate.

In order to assess loans from banks, it is good that you have had a good credit history which can boost your point of getting the loan at the appropriate time and also having to bring guarantors is one of the requirements in which bank of these days need before they can tender you a loan. Also, having a collateral which can be as a backup in case you will fail in payments and can be taken in forfeiture to the loan.

 

[Rachael]

It is almost impossible to convince a bank verbally to release loans or funding to you as an individual. Albeit, there are practical ways which you can convince a bank to give you a loan. Through tending all the required documents, completing the paper work, having a good credit history and also guarantors which are above level eight in the civil service are all feasible ways in which a bank can be convinced to release funds. It would be difficult for banks to release funds if the reverse were the case, where an individual has bad credit history, lacks guarantors due to the fact that no one trusts him or her when it comes to money issues and also lacking collateral.

Banks also deals squarely when there is a proof to backup as an evidence. The ability to convince a bank would go beyond verbalism into something that can be documented in case the individual tries to escape or elope when the time for repayment draws neigh or elapses. It is therefore pertinent that whenever we get loans, we should try as much as possible to repay it at the appropriate time and with the agreed interest rates as well.