| How To Get A Bank Loan |
 Getting a bank loan always comes with challenges. Even with recapitalisation and banks’ increasing willingness to extend credit to customers, some individuals and businesses still find getting a loan a mountain too high to climb. This shouldn’t be. As eager as banks are to offer loans and credit facilities to customers so are they anxious not to burden their books with non-performing loans.
Getting a bank loan always comes with challenges. Even with recapitalisation and banks’ increasing willingness to extend credit to customers, some individuals and businesses still find getting a loan a mountain too high to climb. This shouldn’t be. As eager as banks are to offer loans and credit facilities to customers so are they anxious not to burden their books with non-performing loans. Banks are profit-making organisations, so in your loan application you need to convince them they can make money by doing business with you. How? By following the simple steps below. Determine your need Oftentimes individuals and businesses approach banks for loans without knowing the type of loan they need and how much they want. Banks are usually sceptical about such applicants. Banks have various loan products tailored to different needs and situations. These are typically grouped under corporate, for big businesses; retail, for small businesses; and consumer products for individuals, and are categorised as either short or long term. Under these categories are different offerings: auto loans, personal home loans, secured loans & overdrafts, LPO finance, revolving credit facility, invoice discounting, share purchase loan, term loans, note issuance facility, syndications, etc. So, the first step to securing a loan is to determine what you need. Do your research You can then do your research and shop around for a bank that has what you need. You are most likely to succeed if you approach a bank that knows your industry/has done business with firms like yours, or one with a high loans approval rate. Visit as many banks as you can to get their loan packages and charges or visit their websites and then pick the one that is best for you. For instance, First Bank has an extensive knowledge of the agricultural industry and is the leading provider of loans to the industry. Get a referral to your chosen bank Banks tend to favour people referred to them by their important customers. To strengthen your hand, try and get a friend of the bank to give you a good referral. Open an account with the bank This is the next best thing to getting a referral. Open an account with the bank and run it regularly. Banks like to know you chose them over others and are more favourably disposed to account holders. And cultivate the friendship of one or two of the bank’s key managers. Develop a relationship The worst time to ask for money is when you meet someone for the first time. So it is much better to start developing a relationship several months before you need the money. Having opened an account with your target bank, hold regular meetings with the managers to get them familiar with your business. Talk to the loan officer You need to then approach the loan officer for other necessary details. For instance, you want to know your pre-qualification status, that is, how much you can borrow. This is typically dependent on your income, equity contribution, debt level, nature of business, and others. You also want to be sure of the needed documentation and your legibility for the loan. Gather the necessary paperwork Get the required documents – originals and photocopies – together, arranged logically. Make several copies of each document; banks sometimes request for several copies of each document. This way you are prepared should the bank want additional copies. It also saves time, convinces the bank you are organised and tells them a loan is a low-risk decision to you. Banks like to know their money is in safe hands, and making a good first impression is often critical to your loan success. What documentation do banks require? This varies depending on the loan type and the bank, but generally, banks would want to have the following documents: Individuals: Employment records, bank statements, property documents, tax clearance certificates, record of income, letter of notification from your employer (if employed), letter of guarantee from a reputable person, properly completed application form/accepted offer letter, insurance records, history with a particular bank, post dated cheques – some banks, like Diamond Bank, require this if you do not have an account with them – and others. Businesses: Duly completed loan application and pre-qualification forms, loan proposal, financial statements and projections for two years or more for greenfields, three years audited reports for existing company, evidence of cash flow, a cover letter, company’s tax clearance certificates and those of its directors, certificate of incorporation, memo/articles of association, evidence of insurance cover for company assets, report of current valuation of the company, a comprehensive business plan, and others. For mortgage loans other documents required include: certificate of occupancy (C of O) to a piece of land, layout/survey and approved building plans, priced bill of quantities (to build), and letter of offer from vendor (to buy). Apply for the loan With the necessary documentation you can then apply for the loan. However, getting the necessary documents and applying is no guarantee you will get the loan. You must be prepared to deliver a compelling business case to satisfy the loan officer. Banks want to know you are genuine and that your business is sustainable, so they want to know your personal financial history/banking history and that of your business, why you need the loan, how and when you will repay it, your pedigree in business managing, your personal reputation and your worth. As a business, your loan application must include broad information about your business, its management, the market, its financials, and detailed information on the loan needed (type, amount, collateral, etc.). Your application must also include possible risks. This will tell the bank that you have thoroughly thought about everything and are fully prepared for important risks. Stick with facts Information supplied in your application form must be verifiable, so do not make unsubstantiated claims, because banks can and do check them out. Provide as much details, supported with data, as you can. This will ease the work of the loan officer in having to ask for more clarifications. The less trouble he has with the application the more likely he is to approve it. Don’t be too optimistic with your figures, as they might appear unrealistic. Be conservative in your estimates. Have a repayment plan Banks like to know that you are not only thinking about yourself but also about how they would profit from the transaction. They like nothing more than to see you already have mapped out your repayment plan. This tells them two things: that you understand your business and are confident it will do well, and that you are anxious to liquidate your loan. However, you need to be realistic in your projections. Prepare for a testing interview You must also be prepared to answer convincingly some hard questions as regards nature of business, your personal investment in/commitment to the business, legal makeup/registration of the business, product/services offered, marketing strategy, competitors, tax payments, cash flow/projected, balance sheets, your personal abilities, experience in business management, etc. Your ability in articulating these will boost the loan approval. Bankers will typically follow your application for loan with a check on your credit worthiness, what they call the six Cs, so, you need to build those up: Capacity, Credit, Capital, Collateral, Character, and Conditions. Capacity: Here the bank will scrutinize your ability to liquidate the loan. Your cash flow statement will show if you have the capacity. Credit: Banks want to know your personal credit; are you in debt, do you pay your bills on time/regularly and so on, because they want a guarantee on the loan from you/managers of the business. Good businesses sometimes go to seed from poor management. Getting a guarantee from you/managers is one way banks hedge their risks. Capital: Banks compare loan size to the financial situation of the individual/business. They want to be sure you are not overreaching yourself. Your research should tell you the maximum amount for each loan type and your business plan or market survey should tell you if you need the minimum or maximum amount loanable. Don’t ask for more than you need otherwise you might be turned down. Collateral: Having an asset(s) to secure a loan will brighten your chances. So, if you have, make sure to list such and their values in your application form. Banks will verify to see if you have collateral. Character: Integrity is key here. The bank will check your personal reputation and that of your business. And that is why you need to be truthful in your application to the best of your knowledge. Conditions: Banks want to know what you need the loan for to be sure it is a legitimate business, and for how long you need it. Your repayment plan will help here. Try again Having done all that is necessary, your chances of success are high. But should your loan application be turned down, do not despair. Find out why and then move on to the next bank and the next and make your pitch again until you are successful. Finally Though banks are awash with loanable cash, they still need to be convinced you are the right person to give their money to, and that is why you need to be at your best when speaking with banks about a credit facility. As one writer puts it, you need to convey the same confidence you have about your credit worthiness, your business, its results and your ability to repay the loan to the lender for you to stand a chance of getting one. Most businesses run without proper bookkeeping and so when they need credit from banks it becomes a problem. While your confidence and enthusiasm are important, supporting them with facts and figures is what really counts in loan applications. |
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