Do you keep in touch with your banker on a regular basis? If not, it is a good habit to get into, regardless of whether or not you are ready to take out a loan.
During times when the economy is struggling, having a solid relationship with a banker can go a long way toward providing stability for your company. The time and effort that you put into establishing a relationship with a local bank can really pay off by helping you build trust, respect, and credibility.
Periodically reach out to your banker to let them know what is going on with your business. You don’t have to wait until you are applying for a loan to talk to them about your company. Instead, consider keeping them in the loop with any major business developments. You may even want to give them an annual tour of your business. Building a relationship with your banker when things are going well can ensure that you have an ally when the economy takes a turn for the worse.
Banks are much more likely to approve an application for a loan when they have already worked with a business in the past. That doesn’t mean, however, the getting approved for a loan during tough economic times is easy. You still will have to provide lenders with detailed information about your business.
Preparing To Apply For A Loan
With proper planning, taking out a loan can go a long way toward helping your business succeed. Before you meet with your banker, be sure to follow the steps listed below:
1. Know exactly what you need ahead of time.
Before you walk into a meeting with your banker, figure out exactly how much money you need. Additionally, establish how that money will be used to benefit your business.
2. Consider working with multiple lenders.
The more lenders you work with, the more likely you are to be able to get financing when you need it. Depending on the size of your organization, you can either work with multiple banks or you can borrow from a single bank using a combination of short-term and long-term loans. If you want something with a good rate, then, apply for a guarantor loan
3. Understand what lenders are looking for.
When you apply for a loan, lenders usually rely on a set of standards that are commonly known as the “five Cs”. They include character, capacity, capital, conditions, and collateral.
In terms of character, the bank will want to make sure that your business and its employees are skilled and experienced enough to follow through and get good results. With capacity, they will be looking at whether or not you are capable of paying back the loan based on your past income and your projected cash flow.
With capital, they will want to make sure that your company has a solid equity foundation. The conditions of the economy and of your industry also come into play. Finally, they will also want to make sure that you have enough collateral to cover the loan if you are unable to pay it back.
4. Regularly communicate with your banker.
One of the best ways to get in good standing with your banker is by communicating with them on a regular basis. Always make sure to file any reports on time. If you are late with any important paperwork, it can negatively impact your banker’s view of your company.
You should also try to keep your accounts well under the maximum credit limit that you were approved for. If your financial needs change, sit down with your banker and discuss raising your limit rather than pushing it to the max.
You should also come up with cash flow projections for both the near future and the more distant future. Provide your banker with this information so that they have it available if it is ever required.
5. Be prepared.
When the economy is struggling, bankers usually will require far more documentation before approving a loan. Try to have all of your ducks in a row before you apply. Don’t get upset if your banker requests additional documentation or information. Instead, provide it to them promptly.
Don’t forget to polish your business plan, as well. Having a well-written business plan can go a long way toward improving your chances of getting your loan application approved.
6. Stay on top of your finances.
When you are running a business, it is easy to fall behind on basic activities like making sure that your bills are paid on time, your inventory is monitored, and all of your receivables are collected. Make sure that you are keeping up with these vital parts of operating your business since bankers will check to see if you are on track.
Ultimately, the steps that you need to take to improve your chances of getting financing when the economy is going through tough times include the following:
1. Be as prepared as possible.
2. Work with multiple lenders to diversify your credit profile.
3. Understand what bankers are looking for when they evaluate applications.
4. Never withhold information from the bank. Always answer their questions promptly and completely.
5. Make sure your business plan is in great shape.
6. Stay on top of the finances for your business.