Most of the lending companies do not help businesses that are struggling. Every loan application gets listed on the credit record of the person. If the application is rejected by one lender then it goes on record and the person may find it difficult to get approval from other lenders. There are some key areas of evaluation used by lenders. These include verification of credit and outstanding accounts of the company, Cash flow - audit results and future projection, Collateral for seizing if the loan is not repaid, Management's experience, and capital and equity.
Several steps can be taken to ensure that one gets the required loan sanctioned. The first of them is to establish trust. One should try to establish a relationship with the lender sitting across and the more the lender gets to know you, the better the chances of getting a loan. The second is to refine the business plan. It should be realistic and at the same time, it should not mask the risks and contingencies. It should also cover the capability and qualifications of the working team.
The third thing should be payback. The lender's primary concern is always repayment and the projections should be such that they convince the lender to give the loan. The fourth step that should be kept in mind is the amount of the loan. The amount should be realistic for the business in hand and the amount should reflect what is needed for the business instead of what the person wants. The last one is getting the right lender. Many lenders focus on small businesses and they are probably the right ones to approach.
The primary source for commercial lending are the banks and it should ideally be the bank that already handles the business' finances. The advantage of familiarity is always high with known banks but they may require more collateral or proven successes as compared to the other lenders. Most often they may not lend money to businesses that are less than five years old in the market. If banks turn down the offer then the next best bet is brokers. The brokers do not lend directly but help in finding the right lender. The loan should be of the right size and type. It is also essential to check references of the lenders, financial rates and costs. Read more from Bernard Linney here.