What are the tips and pitfalls to avoid to get the best chances of getting a business loan ? Bankers and entrepreneurs deliver their advice. There is no point in looking for the lowest rate. Here are some basic rules to know to have a maximum chance of getting a loan for your business.
1. Experience and appreciated capital
The borrower’s experience is obviously a plus as is his motivation. Beware of reconversions! The former mechanic wishing to start a start-up will be more likely to get a pro financing if he associates with a domain expert.
2. Show your rigor and enthusiasm
These are intrinsic qualities for obtaining loan. ” loan means to believe in Latin. The creation proves to be a difficult period of the life of the company since the banker has no reference except the credibility he can have in the project leader. It is not necessary to adopt a particular posture on the day of the interview. What counts is the determination of the entrepreneur, his ability to convince, Without a balance sheet in his possession, the positive feeling of the banker emerges in view of a number of criteria, indicators and its feelings. Beyond the numbers, the human relationship weighs in the final decision.
3. Business plan, the centerpiece
The business plan turns out to be the centerpiece. The project must be sufficiently structured, thoughtful. Thus the banker will feel that he has a contractor who has worked seriously. It will then adjust its judgment according to the competitive environment of the proposed product or service.
Needless to say, the banker is primarily a “lender” who charges interest and expects the borrower to return the loaned capital. It may be required to take guarantees that will enable it, in the event of insolvency of the debtor, to recover all or part of the sum lent. The guarantee application is also a good way to test the borrower’s commitment and belief in the success of the project.
It is essential to highlight the “strengths” without neglecting and ignore its “weak points”! A new leader, lucid about the difficulties and risks of his project, is more likely to anticipate and overcome them. It is also a mark of transparency and professionalism to which the banker will be sensitive. Never lie or hide your situation to the banker! It would ruin the banker’s trust forever.
4. Surround yourself well
The accompaniment of the project leader by professionals also plays a determining role in the criteria for obtaining a loan. For example, the presence of a maintenance accountant will make a good impression. His technical support gives loan to the borrower. Just like belonging to a network or growing up in an incubator. Some networks in its approach to supporting project promoters, benefit from a special agreement with the banks. They undertake to give an answer in short time and to look at the file with benevolence.
5. Analysis of the round table
The project owner’s capital is equally revealing. Does he invest his own money and how high? For the president of the Regional Banks Committee, it seems essential that the latter commit half the amount requested.
The involvement of Business Angels in the tour de table and the participation of investors reassure the banker. Just like the ability to associate family and friends (Love money). Even the general public by raising funds via crowdfunding. All this reinforces the praetor in the merits of the adventure of his client. If all these conditions are fulfilled, the interest of the banker is necessarily strengthened.
6. And to invest in the development of my company?
Buying a vehicle, machine tools requires mobilizing money. Again, return to the bank box. This time, the banker relies on the exercises of the last three years to get a clear idea of the activity of his client. Does it have sufficient cash flow (CAF) to repay its loan and does it have room for maneuver in the event of a risk? In the eyes of the banker, what matters is the ability of the borrower to generate profits. It must identify the contribution of this new investment for the company. Will it help to increase the turnover and therefore the CAF? Is it a way to improve productivity? As many questions as the banker will ask. His appreciation will therefore diverge if it is a question of replacing an existing machine or of an additional acquisition.
7. A business loan in the short, medium or long term?
The banker decides the tempo. When the short-term loan (2 years) finances the operation, grants cash facilities, the medium term allows to acquire machines and other vehicles over the duration of the amortization is 5 to 7 years. The long term is the privilege of real estate investments up to 20 years. In this case, the asset becomes, by the game of the mortgage, the banker’s guarantee.
8. How many bankers do you have to solicit?
First of all, the project leader who is applying for a loan must logically turn to his usual bank. In case of refusal, he can turn to another bank. From three failures the project leader must however question himself ! Banker’s Council. However, the profession aware of the opacity that reigns over the refusal of loans seized the topic in 2015.
9. The rate is not everything.
The loan rate, based on the market index, is increased by the banker’s margin. It will diverge according to the quality of the borrower. The riskier the adventure, the higher the rate will go. There is no point in chasing the lowest interest rate. Especially for small amounts or the difference will prove marginal. However, be sure to look at the personal guarantees requested. The competition between banks may encourage some of them to soften their requirements by seeking support. In fact, the guarantees requested the lender to find reduced.
” You have to think carefully about the contractual terms and conditions (early repayment, loan renegotiation, covenants & waivers). The borrower must check the penalties imposed by the bank in case of early repayment. Read also covenants, these particular clauses, for example the commitment to maintain shareholding.
10. Follow the advice of other professionals
To minimize the risk of failure, the best way is to find out from colleagues who have already done the same thing. Today professionals have access to very effective tools to collaborate and share their experiences. There are many returns and they save valuable time when looking for financing or business loan .