- 1 10 Tips to Increase Your Chances of Getting a Bank Loan
- 2 10 Tips to Increase Your Chances of Getting a Bank Loan
- 3 chance of getting a loan
- 4 5 Ways to Improve Your Chances of Getting a Small Business Loan
- 5 What are your chances of getting a business loan with the banks?
- 6 Six Ways to Improve Your Chances of Getting a Mortgage
10 Tips to Increase Your Chances of Getting a Bank Loan
Getting a loan from the bank can be a very long, tedious process which can very quickly go the wrong way if not handled well. A lot of people have gotten rejections because they didn’t prepare adequately before applying for the loan. Before you apply for a bank loan, you need to prepare well and here are 10 tips to help you prepare and increase your chances of getting that bank loan the next time you apply.
10 Tips to Increase Your Chances of Getting a Bank Loan
1. Learn about the loan process-: First you have to understand the loan process and how it works and also understand what the bankers look out for before they approve your loan. Bankers try as much as possible to reduce risks and protect their capital as well as other people’s money entrusted with them.
That doesn’t mean that they want to keep all that money in their vault in order to keep it safe. They also need to make some profit too through earning interests on the money they have in their care and to earn interests, they have to lend the money out. But while lending the money out, they also want to ensure that they can recoup their capital back and also get the interests. That is what forms the basis of loan approvals. Before a bank can approve your loan, here are some of the things it would look out for:
5 Factors Bankers Consider Before Granting your Business Loan Request
- Your reputation-: The bank wants to know what your character is like. Are you a chronic debtor? Do you have bad credit history? What are your past performances with previous loans like? Are you stable financially and job wise? Can you commit to returning the funds after you get it?
- Your financial capacity-: The bank would want to know your financial net worth and also want to know if you have enough income to repay the loan.
- Your business plan-: If you are taking a loan to finance your business, the bank would want to know how viable the business is/will be.
- Economic Conditions-: The bank would also consider the economic situation of the country or state that you live in. If the bank suspects that a recession is coming, it may be forced to withhold his funds.
- Security-: When your loan is backed with a collateral security, the bank would be better assured that it would get its funds back come what may.
These are the basic things that would determine if your loan would be approved or not.
2. Get a grip on your credit history-: Before you apply, it is important that you check your credit score first. You may think that you have a good credit score because you have never obtained a loan but other factors like how fast you pay your telephone or other utility bills, your credit card balances and several other factors also count. Ask for your free credit report and if you discover that you have a poor credit score, take steps to improve it before you apply for a loan.
3. Put all documents together-: Before you apply, you should find out all the documents that you would need to back your applications and put them in order. Some of the documents that you would need include your bank statements, your evidence of tax returns, paychecks, driver’s license, and company incorporation documents to mention few.
4. Build a relationship with the bank-: Banks are less likely to hand out loans to new customers than old customers. A bank would expect that you would maintain an account with it for at least six months so before you apply for a loan from a bank, ensure that you have maintained the account for a reasonable length of time and ensure that the transactions in that account can justify the amount you are seeking for.
5. Write an Excellent Business Plan-: Banks would usually ask for a business plan when you are applying for business loans. If you present an excellent business plan that would prove to your bankers that you really need the loan and you have the necessary knowledge required to manage the funds, you would automatically increase your chances of getting your loan approved.
6. Have Specific Needs-: Some people get turned down because they are not clear about what they want. You say you need a loan to buy a house that’s worth $75,000 yet you are applying for a loan of $100,000 without specifying what the excess of $25,000 would be used for. That may also lead to your application being rejected. When applying for your loan, ensure that you do enough research and get a grip on the exact things that you need the money for and the average market prices for those things.
7. Reduce your debts-: Few months from the time that you are going to apply for your loan, make an effort to reduce outstanding debts. This would go a long way in showing your potential lenders that you are credit worthy.
8. Look for a co-signer-: If you have poor credit score and still really need to obtain a loan, you may be able to increase your chances by getting another person with a solid credit history and creditworthiness to act as a co-signer of the loan with you.
9. Approach smaller banks-: You may also be able to increase your chances of getting a bank loan by approaching smaller banks especially community banks. These banks have flexible lending policies compared to commercial banks.
10. Be a faithful borrower-: Let’s assume I am your closest friend. If I came to you to borrow to you to borrow your most prized possession, maybe your most expensive diamond jewelry or luxury car, you are going to think very hard about it before you give it to me wouldn’t you?
Your thoughts would probably go like “can I trust this person to return it?” “Will I regret lending my stuffs out to this person?” Now, what if I return it in good shape and borrow it several times and return it in excellent shape too, would you still have a hard time lending it to me?
That’s how banks and loans work. When you prove yourself to be able to commit to returning money you borrow and paying off debts you owe, you wouldn’t have problems convincing banks to loan you money anymore.
chance of getting a loan
Use this sample personal loan letter as a template for your formal notification.
Use this letter to go into details of what the money will be used for. Oftentimes, banks will lend money for home improvements easier than they will just a personal loan. Things that will make the home better and allow it to have a higher market value may be of interest to them. Some banks like to know that there is a home they can put a lien on should the loan default. Any collateral that you may have increases the chances of obtaining a loan.
Sample 1 - Personal Loan Letter
5 Ways to Improve Your Chances of Getting a Small Business Loan
Small business owners looking for capital may want to spend some time preparing for the process. That's because, Marc Scheipe, chief financial officer at Sage North America, says preparation can make all the difference in whether a company receives the funding they desire.
Scheipe, a former small business owner himself, says that prepared businesses going through the financing process have a better chance of gaining loan approval. To help businesses in their journey, Scheipe offers the following tips to small business owners.
- Provide detailed information— Don’t skimp on specifics with banks. Show exactly how you will use the requested funds and how much you need to accomplish your goals. Lenders appreciate attention to detail and preparedness when it comes to the facts. For example, if you are looking to purchase a new piece of equipment, provide quotes on the exact costs, how much capital you need to facilitate this purchase and specifically how the new equipment will help grow your business.
- Be prepared to share your financial information – all of it – Provide your lender with all the financial background on your company, future growth plans, and often your personal financial information. By offering this information up front, it will allow a bank to gain an understanding of your complete financial situation and it will ultimately reduce the time to finalize your loan package. The more information you have to illustrate that you’ve run your business well in the past gives banks the confidence they need to invest in you for the future. The more information you provide, the easier it will be for your loan officer to get your loan approved. Banks are in business to loan money, so this is a win-win for both sides.
- The more the merrier– Research and make a list of five potential lenders and start at your first choice. If approved for a loan, continue to shop the market for the best rate if you have time. If declined, keep trying! Too often, mostly due to lack of time, business owners stop at the first or second negative response. Be prepared to seek a loan from a minimum of five lenders. And learn from your mistakes. If one lender turns you down for one reason or another, learn from this feedback and adjust your approach with the next lender.
- Seek out Small Business Administration assistance—SBA lenders are a great resource for small businesses. There are counselors who can assist you with the loan process. Additionally, the more you know about the products that are available for your unique situation, the better your chances are at securing a yes response to your application. Visit www.sba.gov, to learn more about SBA loans.
- Think local— There are all types of lending institutions, but community lenders are often best equipped to appreciate how your company works within the local business environment. Community lenders’ key insights can range from local market dynamics, to cash flow timing issues, and they frequently understand your ability to achieve success. It is always important when working with a local lender to highlight your involvement outside of work within the community. This is a great demonstration of your commitment to the community where you both live and work.
Follow David Mielach on Twitter @D_M89. Follow us @bndarticles, Facebook or Google+. Originally published on BusinessNewsDaily.
What are your chances of getting a business loan with the banks?
The process of applying for a loan in the past was arduous to say the least, with only the businesses with long-standing, good credit actually receiving approval and the funds. Often, SME owners/sole-proprietors would end up quite frustrated and in the need of cash because investors just weren’t showing interest and there wasn’t money to be lent in the small business sector. The inevitable fact is that it is still very difficult to be getting a business loan you are looking for through your local bank. The Funding for Lending scheme was designed and implemented to be a crutch in the middle between the borrower and the lender that would generate cash to be loaned out with reasonable rates to SME owners that needed it. Unfortunately, it didn’t pan out as we all had hoped and the small business sector has continued to be on the bottom of the lending list for banks. Lets face it, SME’s typically don’t have enough time in operation or good standing credit to be considered a viable low-risk option for the banks to loan to. Practically half of SMEs applying for loans with banks will get rejected because of it. Thanks to alternative lending making it’s boom, there have been an influx of options for borrowing in the SME sector, and it is not banks.
First and foremost, if you are running a small business that has been in operation for long enough to establish good standing credit (two years), and are current on all of your expenses, then you have a strong chance of being considered for a business loan. But the truth is, most SME’s are not in business long enough to have those prerequisites in place before they are in a negative cash flow situation. In those scenarios the loan typically doesn’t happen because financial institutions will not want to take that risk. It is not financially worth it for them. The next step would be for the business owner to use his/her personal credentials in order to secure the loan, in effect, and sometimes offering up personal collateral in second chance mortgages to fund the business. Again, should that individual have credit report issues or bad credit altogether, the chances of getting a traditional loan from a bank are extremely slim without collateral. That business owner will have to resort to other measures in order to get the necessary loan. In today’s world they have options.
Lets say you qualify for the most important prerequisite of getting a loan, your business and personal credit is strong and longstanding. This doesn’t mean that you are immediately rushed the funds and escorted by red carpet to a millionaire’s club. Your business practices need to be well documented with all the financials in place. You must ensure you have the appropriate business strategy documented in your plan and are prepared to discuss the ins and outs of the business. The SME owner will be required to discuss alternative measures to business challenges, such as recovery strategies to an under-performing quarter, or a documented mitigating actions plan to recover from cash flow issues. If there are no answers, or the documentation is not up to standards, or the business owner just isn’t the type to impress, then it could still be a difficult journey in the process of attempting to obtain a traditional loan from a bank. Due diligence must be performed and the accuracy and accountability of the plan must be presented clearly and concisely so that your business purpose is proven to your lending broker/bank manager before any financing will be considered. If a SME owner has very little documentation, and as a result, shows lack of preparation, it will surely factor towards a declined application.
Introduction of alternative lending and the bureaucratic system of denial
You would think that the explosion of alternative lending in the finance industry would add more competitive balance. Because of the influx of new players in the game that focus on lending smaller amounts of money to its clients such as SME’s, there must be a need for banks to compete and get involved with smaller lending. Unfortunately this hasn’t been the case until very recently. The reality of the situation is that banks are only now starting to get in the small lending game the way you would expect. To banks, even though alternative lending has provided SMEs with finance, it doesn’t change the fact that they are still considered a credit risk and not worth the effort in changing a lending strategy. The loans are for typically smaller amounts that that result in smaller returns. It continues to be not worth the risk. Unless the business’s credit credentials are strong, banks are not lending small amounts of money, and aren’t necessarily helping other lenders fill the gap, perhaps making it difficult for alternative loan providers to operate within that sector. Where the bank may be able to expedite the process of required documentation in order to make it possible for other lenders to assist their customers, they aren’t. The brunt of it is felt by potential clientele attempting to mitigate or resolve cash flow issues that typically occur in small business. Smallbusiness.co.uk told us “Only 3 per cent of small business owners polled saying they were able to secure a bank loan to get their business off the ground, suggesting a reluctance among banks to lend to riskier start-ups.”
The moral of the never-ending story here is that it is very difficult for SMEs to obtain financing from banks, unless they sit in the top percentile of acceptable prerequisites. The remaining 80% of small business owners are required to leap through hoops in order to get a loan. Until companies like ezbob hit the scene offering viable options to SMEs, the little guy had it hard. But alternative lending has made its stance and now continues to be the cornerstone of new business finance and infrastructure. Peer-to-peer lending and crowd-funding have also brought an influx of finance and funding that never existed before. There is money out there coming from non-traditional places, and as these avenues of funding continue to grow, so does the desire of the big banks to adapt their lending strategies. Until then, us 80 percents can enjoy the best of alternative lending for financing needs and much success in their fully funded SME journey.
Six Ways to Improve Your Chances of Getting a Mortgage
- Pay down your debt. Reduce your total debt -- your monthly payments on cars, student loans, credit cards -- before you start the mortgage application. The goal is to reduce your overall debt-to-income ratio and improve your credit score. The somewhat unrealistic guideline that lenders want everyone to toe is that your total housing expenses not exceed 28% of your monthly gross income. For decades, people have exceeded that quite happily but now the lenders believe they know best and they control the money.
- Clean up your credit. Start with figuring out what your reported scores are. Obtain your free credit report from each of the three credit bureaus (Equifax, Experian and TransUnion) and carefully review them, noting all negative items. Correct inaccurate or outdated items. Your credit score needs to be a minimum of 680 -- preferably 720 or higher -- to qualify for a lower interest rate on a mortgage.
- Delay any large purchases, don't apply for any new credit until you close on your house. Lenders check credit reports at the time you apply and then again right before closing. A last-minute spending spree is going to be flagged. Once you clear the mortgage hurdle, feel free to move about the cabin and decorate your new house to your heart's content. (That's said in jest; charge wisely.)
- Increase your down payment. This reduces the loan-to-value ratio and improves your chances of getting a loan. How do you do this? You save up for it or call up your rich relatives. There are also a lot of community programs to help first-time buyers, so check around.
- Get your paperwork together. Your lender will want to see pay stubs, bank statements, assets, credit documents, income tax returns, all financial statements and possibly your fourth grade report card. OK, I made that last one up, but you get the idea. This is paperwork central. And you better make copies of everything you send them in case they ask you for it a third time.
- Develop some patience. You're going to need it.
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