No Loan, No Problem, Not Really
The loan officer was finally back from who knows where, he sat down on
his comfortable chair, reshuffle some paperwork looked at me and told me
that I had been turned down for the loan. Ohh noooo. . . .
At the time, I thought I had so many things riding on that loan. My
family had come down to see me off. And I was going to give them a ride
back on my new car. Oh, by the way, the loan was to purchase an
automobile.
Looking back, of course, it was really not a big deal. But it is a very
big deal when a business owner, and specially a small business owner,
gets decline by the loan officer.
Chances are the purpose of the loan is to keep the business going in
some form or another; loan against receivables, payroll, etc.
But I hear just about every day, another applicant is turned down.
How Then Could We Be Not Turn Down??
Twenty plus years ago, I was in the military, had sawn on my third
stripe and started my savings account. Well to the financial institution
I had just started my savings, just begun my first job and I had no
history credit or otherwise. I was too risky!
After more than twenty plus years, two university degrees, and several
home and business loans later - I think I get it.
You see when we think of a bank we, usually, think of it as a place
with lots of money that you should be able to borrow. But actually that
is not true!
So what is in a bank? you may ask; other people's money.
Yeah, the bank owners have a small (as compared to the total of
account's holders) percentage of their own money invested in the bank.
But the great bulk of the money comes from the accountholders. So in
reality a loan applicant is asking for other depositors' money. And
since the bank is not going to be asking their depositors' opinion about
lending out their money the bank has to make a decision.
I, for one, won't want to lose my money that I have entrusted to the
bank. I strongly believe that all of the depositors/investors won't
want to lose their savings, either.
So, How Then Could We Be Not Turn Down??
Lower the apparent risk that the bank associates and has to account for
in your business loan application to acceptable / optimal bank-set
levels.
Sounds easier said than done. But if its worth all the effort to build
your business it should also be to thoroughly prepare and plan for the
loan request.
Consider that the bank does not want to lose their depositors/investors
money in a risky proposition. So they need to have some sort of standard
level grading where the bank officer and managers 'feel' comfortable
lending to a proposal. Even with set levels of risk some banks have
pushed the limits of their rules and several have lend to whom they
should have not.
Which brings me to another point; Not all banks are the same. Sure we
all see this monolithic structure where there are tons of money to try
to borrow but that's just the front they put up.
When thinking about borrowing from a bank go visit and interview several
bank officers and you'll find out that the takes its cues from whatever
the owner want to accomplish. If the overall experience of the bank
individuals are most experience in ranching they.
Which leads me to what the financial institutions and the SBA calls . .
. The Five C's of credit.
The Five C's of credit.
The five C's of credit are Character, Collateral, Capacity, Capital, and
Conditions.
