Five Steps To Improving Your Commercial Loan Application

No one applies for a loan thinking they’ll be declined but it happens everyday.

Familiar Territory

It goes something like this. You’re at your desk making plans for that newly minted line of credit you’ve applied for when suddenly you feel the familiar vibration of your phone against your leg, It’s your banker. You’re a little nervous but you calmly answer the phone.

The conversation begins with some small talk and then BAM, in slow motion you hear the word D-E-C-L-I-N-E-D! After weeks of providing paperwork and spilling your guts, in a moment all your hopes and dreams, plans and profits are dashed. You’re bewildered, deflated, you say to yourself this has to be a mistake.

Then after a brief discussion with your banker, he or she hangs up the phone and reality sets in – it’s over. The worst part is you don’t know know why you were declined. You’ve literally just wasted time.

The truth is that many business owners don’t understand what it takes to obtain bank financing and ironically many loan officers don’t either. This leads to the blind leading the blind which is no way to approach the future financial stability of your company.

So what’s the secret sauce to acquiring the capital you need to grow your business? The answer lies squarely between the numbers and common sense. Yes, I’m saying that hearing, “You’re Approved” is closer than you might think.

Five Steps To Improving Your Commercial Loan Application

1. Reality Check

   A Bankers primary responsibility is to manage risk. They’re smart, conservative, naturally skeptical and on a mission to find the flaws in your company. Before submitting your loan application put your banker hat on and ask yourself this simple question – would I approve my loan request?

2. With A Little Help From Your Friends

   Hire a good bookkeeper, CPA and fractional accounting service. This might sound expensive but these services will make your business as impressive on paper as it is in real life.

3. Know The Recipe

   Even a cursory search of the internet will provide definitions and interpretations for the most common ratio’s used by banks to measure your ability to repay the loan: Quick Ratio, Current Ratio, Debt Service Coverage Ratio, Global Cash Flow Coverage Ratio, Debt to Equity Ratio, Tangible Net Worth etc. You’re smart, dive in!

4. The Proof Is In The Pudding

   Now that you know how the bank will measure your company it’s time to apply your knowledge in real time. Yes, you’re great at driving revenue but there is more to successfully running a company than increasing revenue. Like a good friend of mine always says, “It’s not what you make, it’s what you keep that counts.” Pull yourself away from the daily grind to understand what the numbers say about your business.

5. It’s Still About Relationships

   Most business owners start looking for a bank when they need financing for growth, equipment acquisition or a real estate purchase. I suggest finding a banker well before you need financing. Why? Because finding the right banker at one bank is like finding the right banker at every bank. If your banker can’t help you it’s likely he or she will know someone at another bank who can.