Increase Your Chances of Getting a Loan

By: Michael Vodicka

“Securing a business loan can be a very powerful catalyst for growth. So be sure to do your homework and know the rules of the game in order to increase your chances of success.”

Taking out a loan is a very important step for growth for many small-business owners. That extra funding and liquidity can go a long way for opening new locations, adding labor resources or creating a strategic partnership that will help pump up your brand.

So when the time comes for you to walk through the doors of your local lender and ask for an infusion of cash, it’s important that you have a very clear understanding of how the game is played. Because just like the small-business owner, banks are in the business of making money, and in light of the financial implosion a few years back, they are very picky about whom they lend to and who they don’t.

On that note, let’s do a quick run through of some very key points that you should consider in order to increase the chances you and your small business will get the funding you need to keep growing.

Top 6 Loan Tips

Tweak Your Credit

This category actually deserves its own column (maybe next week), but first and foremost, your bank will be looking very closely at your credit in order to determine if you are a qualified borrower. There are a number of strategies you can use to give your credit score a quick shot of adrenaline, but  generally speaking, you want to make sure there are no glaring weaknesses. Like a cable bill from 10 years ago or a parking ticket from 5 that you simply forgot about. It’s easy to forget about some of these lingering issues in our fast-paced world, so make sure to get a copy of your credit report, hunt down any open issues and get them taken care of quickly.

Collateral

It also really helps to have assets when you are looking for a loan, which actually reminds me of the old saying, “the only people who qualify for loans are the ones who don’t need them.” While that’s actually not true, the moral here stands; if you want to borrow money, it always helps to have some sort of collateral to pledge against your borrowings. That could be a house, specialty investments, stocks, bonds or even equity in your existing business. People who have valuable assets are demonstrating to the bank that they know how to earn and save.

Know Your Banker

Speaking of banks, your personal banker will play a very key role in determining if you qualify for a loan. So that means it pays to develop that relationship as much as possible and do everything you can to get another ally on your team. That could be going out for lunch, following up with an insightful email or just being as charismatic as possible when you walk through the door.

Get a Cosigner

This is almost a sure fire way to qualify for a loan if you can secure a credit-worthy individual as your co signer. It’s also another way to quietly introduce another partner or stake holder into your business, where you can induce someone to back your business loan with a equity or some kind of kick back.

Know Your Business

When you apply for your loan, expect to be grilled about your business. What were sales last year? Average sales over the last five years? How profitable are you? How does the balance sheet look? What about margins? Is your growth organic or debt fueled? Bankers can’t see or feel your business, so all they have to go on is what they see on paper. So make sure you understand the parameters that a banker uses to evaluate the strength of a business.

Work Multiple Deals and Network

This reminds me of the saying “if at first you don’t succeed, try, try again.” If for some reason you get dinged on your first application, do not fret. Keep in mind, there are thousands and banks and bankers all across the world as potential lenders. So be sure to cast a wide net and talk to a number of different financial institutions to determine who the best fit is for you and your small business.

The Big Picture

Taking out a business loan can be a very powerful catalyst for growth. So be sure to do your homework and know the rules of the game in order to increase your chances of success.

Author

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on RetailMinded.com as well as in each issue of Retail Minded Magazine. 

**Follow Michael on Twitter @mikevodicka