Interest rates are low, demand is mediocre and commercial banks seem inclined to lend once more. If you believe your business could benefit from a loan, now may be the time as these favorable factors converge.
Commercial Lending Trends
Banks are no less competitive than other industries. Therefore, choosing a commercial loan requires no less effort than you would exert in shopping for a new car. If your business is successful, with a proven track record of profitability, banks will compete for your business. This means you will need to approach more than one bank with your loan request and don’t be reticent about letting them know you are shopping for the best rates and terms. Apply with banks having an asset base commensurate with your needs but no so flush as to regard you as small potatoes.
There are some innovative online lending possibilities that you may want to consider as well. Crowdfunding is gaining traction among small business, start ups and entrepreneurial enterprises of all stripes. The crowdfunding concept provides almost anyone the opportunity to fund a loan at a predefined interest rate and share in the interest income as the loan amortizes. The idea has been well received by borrowers and investors alike. Rates are usually below those you would find at a conventional bank although the process may be more cumbersome and drawn out than with conventional sources. You can learn more about it here.
Regardless of the lender, it is important to be prepared with the documentation necessary to support your request for funds. You will need three years of reviewed financial statements, three years of tax returns, a one year forecast at minimum, an accounts receivable and payable ageing and an executive summary which explains your growth forecast and explains how the loan will be repaid. The executive summary need not exceed four or five pages.
TIP: If you see that your accounts receivable are a bit long in the tooth, resolve the issue by seeking the services of a factoring company. They can take these off your books and provide your business some additional cash flow. If you want to see how this impacts your business, I suggest you use this free invoice factoring tool to see exactly what factoring could accomplish for your business. It’s possible you will find that you can reduce your loan request or avoid borrowing entirely.
Prove the merits
You must be in a position to validate your business need for the loan. The manner in which you demonstrate the need will depend on the purpose of the loan. The reasons for borrowing can vary widely and it is impossible for me to cover every possible scenario in the space provided here.
I can give an example:
Your company does printing work for several major businesses. You have been asked by many of your customers to handle mailing invoices, bills, marketing materials, etc. You can demonstrate to the loan officer the cost of the mailing equipment versus the income it will produce. Basically, a cost/befit analysis supported, if possible by written commitments from your customer base.
In this scenario, you have demonstrated the need for the loan and the source of repayment. Not all scenarios are this easy to substantiate, but it does provide some insight.
Following this advice will enhance the probability of your loan request being stamped—“approved”.
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