It is hard to get a business loan, even when you know what you are doing. It is doubly difficult to get one when you do not know how to play the game – and make no mistake it is a confusing, frustrating game. But, like all games, the more you understand the rules, the better chance you have of winning.
You can have the best team, quarterback, and coaches in the NFL, but they will not get to the Super Bowl if they do not follow the rules. They would have so many penalties on each possession they would rarely make it into the end zone. That is assuming, with all the suspended players, they would have enough men to field a team.
To increase your chances of winning the loan game here are five rules to follow.
Know your personal and business credit scores
This is one of the primary reasons business owners are turned down for loans. Most owners do not know the scores show their poor, or lack of, credit history. Your application will be denied if you are too risky. Do not apply for money you have no chance of getting if your scores show you are not credit worthy. You have to build or repair your scores if you want to get a loan.
Have enough cash flow
Why should lenders give you money if you are not able to show you have, or will have, enough cash flow to repay them? It is simple – there must be a reasonable chance they will get their money back. If you consistently have more money going out than coming in you have a management problem. Interestingly, when owners fix their cash flow troubles to get a loan they often no longer need it.
Have enough verified collateral
What if you do not have a history of positive cash flow? Lenders may overlook it if you can offer physical assets (i.e., house, land, vehicles, equipment, building) for collateral. But, your estimates of the property’s worth must be true market value. Owners are notorious for over valuing their collateral.
Completely understand your financials
Have you ever been baffled or shocked by a lender’s refusal to give you financing or extend your line of credit? Then you have not been paying enough attention to your financials (i.e., margins, profit/loss, accounts receivables, cash flow). They tell you, and the lender, the economic health of your company. It is your responsibility to understand all the fiscal information the lender bases his approval or denial on.
Have a written, solid business plan
Dreams and good intentions are not facts, and they are not a business plan. Watch Shark Tank if you have any doubts about the truth of this statement. Some of the things a solid business plan includes are legal documents, financial statements, customer data (past, present, and future), location research, profit and sales projections, mission statement with goals, product research, and personnel backgrounds/skills.
Most loans are denied because the owner did not make an effort to meet all of the rules. Following these rules does not guarantee you will get the loan. But, it will drastically increase your odds of at least being in the game. As Lou Holtz said, “The man who complains about the way the ball bounces is likely the one who dropped it.”
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: