When you’re in the market to start or expand your business, the first thing you will certainly be thinking about is the finances. If you’re lucky, you might have enough saved up or inherited, but for most people, the way to go is through a bank loan. But let’s be real – getting a loan for a business is daunting. It’s a lot of legal obligations and there’s never a guarantee that you’ll be able to pay it all off at some point.
There’s a ton of options to consider and so much seems to rest on this one decision. And while one article isn’t enough to fully prepare you for getting a loan, there are a few tips and tricks that will help you get the best deal and the best chance for success.
Don’t Get Blinded by the Rates
Talking loans 101 – you have the amount you’re going to get, the period over which you need to repay it, and the interest rate: the extra money you pay the bank for borrowing the money to you. So since that interest rate is the only thing you’re paying, the first instinct is to find a bank with the lowest interest rate.
However, this isn’t the main thing you should be considering. If you need $100, you’re better off finding a bank that will give you $100 with a 4% interest rate, than one that will give you $60 with a 2% interest rate. So while interest rates shouldn’t be ignored, you also need to think about establishing a good connection with your bank and finding someone who will borrow you the money you need.
Keep in mind that the usual rates are between 2% and 10% and you’ll want to have a detailed payment plan with whatever rate you get to make sure you have enough income to make those payments. Keep in mind that rates might fluctuate over time depending on the contract you sign, so you might be able to keep rates lower in the beginning and have them increase as time goes on if that fits you better.
Have a Plan Before You Apply
Put yourself, for just a moment, into the shoes of a banker. You see a client who wants to borrow the bank’s money to start a business. But you, as a banker, are responsible for that money. If the person you loan it to doesn’t make that money back and hasn’t a way to repay the bank – you just lost the bank a lot of money. So, getting back into your perspective, you can appreciate why it’s important to have a solid plan of action before you go ask for a loan. You can’t just ask for money without having anything to back that up.
When you go to the bank, make sure you bring with you detailed budgeting plans that will assure the banker that you know exactly what you’ll do with the money and that the plan you have is a roadmap that ends with you paying them all of the money back. Depending on your plan, the bank might have a different type of loan for you, and you can read more at Nav about the different types on offer. This will skyrocket your chances of getting a loan because you’ll seem like a more competent, confident entrepreneur.
You’re Interviewing Them as Well
Just like the bank is interviewing you to make sure you will get the money back, you are interviewing them to make sure they are the right fit. The job starts well before you go for the meeting – talk to other people in your industry and line of work to see how they funded their business. Then, check local banks and loaners you’re interested in and see if they funded businesses similar to yours in the past. If you can’t find the information beforehand – this is your chance to ask all that and more!
Ask about any additional fees related to taking out the loan, ask the details about the repayment plan, the average of the loans they give out, as well as any guarantees and collateral they might require. All of this information will help you determine whether they’re a good fit for you. And if you’re not getting a good feeling about them – you don’t have to accept the first offer that is put on the table. There are supposed to be the people you’ll be working with for a long time and establishing a good connection is important, so if you don’t like them – you don’t have to work with them!
Get to Know Your Banker
If you’ll take any tip from this article, let it be this: we’re all human. The banker you’ll be assigned to, even if they represent a faceless trillion-dollar bank, is still human. And the human connection is what will help you not only in securing the loan but make you feel less stressed if you have hiccups down the road. This is why some will recommend going to a smaller local bank for long-term goals because you’ll be able to form that bond with the person you’re assigned to.
So if one month, business is down, and you won’t be able to make the regular payment – a human connection is what will allow you to renegotiate and probably waive the fees for the late payment. In connection to this, make sure that the first time you’re meeting them, you’re dressed up nice, you’re pleasant to talk to and relaxed to make everyone feel more comfortable.
Remember that getting a business loan is not a small thing and shouldn’t be done lightly. The lenders will probably consider your credit as well, so make sure that is all in order before going to ask for some money. And keep in mind that, even if you do everything you’re supposed to, you still might get rejected the first time you go in. So, keep your spirits high and remember the only thing important is that you find someone who will recognize the value and potential in what you’re trying to do – and that takes time!