How important is “you” when applying for a small business loan?
When applying for a small business loan, have you often wondered what bank managers look for when deciding whether or not to support your application?
One of the key aspects is you. If you’re running a small business, then more than likely the business is really just you and probably not many other people. You may operate under an impressive name or from shiny offices, but if it all depends on you, then from the bank’s point of view “you” are the key to safe lending.
Here are just a few aspects of a person’s character that banks consider important.
How old are you?
Like it or not, age should be a factor in your credit score. If a businessman, especially a one man operation, takes out a payday loan for 25 years and is already 70, the chances of him being around to see it paid off are pretty slim! If he is also the key person in the business who does everything possible, then losing him can have an impact on the performance of the business.
On the other hand, an 18-year-old boy with spots on his face, who just graduated from school, asking for $ 100,000 may not be considered a force either! Age is not a major issue, but it is something to consider.
What is your level of commitment?
A manager can usually sense a person’s commitment to the project or business in a number of ways. For example, it can be seen in their language and the passion with which they talk about business. The bank wants to see someone who is passionate and enthusiastic about the project, so now you can see why it’s important to look and sound confident.
A business owner’s commitment can also be measured in more tangible terms, such as how much of their money they put into the venture, or alternatively how much they have withdrawn from the business over the years. If the owner regularly injects money into the business to help with working capital or to buy new machinery, this is an encouraging sign. However, if money is being withdrawn regularly for no apparent reason, then the Manager will need to ask why, as this may not demonstrate full commitment to the business.
But what if only a small amount of cash or no cash is being invested in a new project? Well, if you didn’t get it, you didn’t get it! However, commitment can be demonstrated by the fact that you are willing to pledge your house as collateral.
In the meantime, the question you need to ask yourself is how does your commitment to the business look to an outsider?
Seeing what the business owner has put in and what he is willing to lose will help the manager come up with a fair assessment of the person’s commitment. Hopefully it will be judged more as a strength than a weakness!
Can you consider yourself an honorable and honest person?
It’s hard to gauge, but we all pick up vibes about people within minutes of meeting them. Things either ring true for you or they don’t.
To support his intuition, a manager can often get information about someone from other people. Bank employees are sometimes a good source of information for managers. Every office has someone who seems to know everything about the people in the area! These people are a fountain of knowledge!
If you have skeletons in the closet, don’t assume they won’t come out! If they’re bad enough, they’re bound to surface, and that can affect your chances of success.
What was the source of the introduction?
When preparing your business plan or building your new business, you may decide that you don’t want to submit it to your own bank for a variety of reasons
Once you’ve decided to take your plan elsewhere, you have 2 options: you can either go back cold to the bank of your choice, or you can ask a business colleague to introduce you to their bank (assuming they’re happy with the service, which provide) receive).
If he knows you and the skills you possess, he may be willing to do more than point you in the right direction; he may be happy to “vouch” for you. By doing this, he tells his manager that he thinks you have a good chance of success and that you deserve support.
If your representative is a respected businessman and has a good bank account, then this type of representation can be considered a strength, a positive point in your favor.
You can see that when you run a small business, you are a very important asset to the bank. Make sure you take advantage of this when approaching the bank for a loan.
Robert Warlow
Small business success
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