3 Things Not to Do When Applying For Business Loans

Small business owners are some of the most hard working and knowledgeable people on this planet. They have big dreams and nothing can get in their way. One fall back for such a driven and motivated person is that often times, certain operational functions are not carried out correctly. Because small business owners want to move swiftly, certain details can often be overlooked, causing the business to not run as smoothly as we all want it to.

Applying for business loans is one of those operational functions that small business owners just can not seem to get their arms around. Here are a few tips on some of the things you should not do when applying for business loans.

Number 1 – Banks and lending institutions have no interest in taking on any kind of risk whatsoever. The recession has spooked lenders to not lend out money to anyone, or any business that does not have exactly what they are looking for. In knowing this, it is important to understand what the banks’ underwriting guidelines are. Do not be intimidated by the bank or its loan officers. Once you understand how their processes and guidelines work, it is easy to entertain those processes and guidelines. Ask the bank what it will take to be approved for the particular business loan you are looking for. Do they want a certain personal credit score? Do they require a good business credit score? Do they require you to be in business for so many years? Once you have found out what those guidelines are, you can go back and work on falling within those guidelines. Do not walk into a bank and apply for a business loan without first knowing what their underwriting guidelines are.

Number 2 – Your credit score is one of the biggest factors determining whether or not you are going to be approved for business financing. Many banks are going to require that you have a decent personal credit score along with a good business credit score. Yes, the two scores are different. Before applying for financing, you need to check both your personal credit score along with your business credit score to make sure they are what you think they are. Applying for a business loan without knowing what those scores are is a big risk. There is nothing worse than applying for a business loan and being turned down because you thought you had a 700 credit score and you really had a 620. This will also affect your future chances of being approved for a business loan with any other bank or lender. Once you have been denied by three banks, you are most likely going to be denied by all other banks because your credit score has been checked too many times in such a short period. Do yourself and your business a favor and know your own numbers before anyone else does.

Number 3 – There are two facts that many small business owners fail to see in our current economy. Number one is that nearly every small business owner in this country is starving for money, which means there are thousands of small business loan applications sitting on loan officers’ desks. Number two, loan officers are paid on commission, which means they are only paid when a loan has been closed. If we know these two facts to be true, then it is vitally important to have a very well assembled loan package. If you give the loan officer any excuse whatsoever to have to find more information on your business, your loan application is going right in the trash. Loan officers want to be paid, which we know only happens when a loan is closed. In this economy, loan officers are only going to spend their precious time on loan applications that they know are easy to close. Your loan application has to be prepared with everything the bank wants to see when applying for a business loan. This includes a well written business plan, professional looking financial documents, articles of incorporation, and good personal and business credit scores. If you have these documents, do not put them all in a shoe box and walk into the bank. Organize them neatly and professionally so the banks perception of your business is a positive one. Do not think you are going to be approved for a bank loan or line of credit without being prepared.

In conclusion, think about the banks money as your own hard earned money. Would you lend out money to a business owner that does not have what is required to own and operate a low risk, positive cash flowing business? No, probably not. Put yourself in the banks’ shoes and think about what you would want to see. The more prepared you are when applying for business financing, the better your chances of getting approved for business financing.

Trey Markel is the CEO of T3 Media, an organizatio

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Improve Your Chances Of Getting A Business Loan

Is your money shrinking and you feel like you need a business loan? Too many people feel the pressure of throwing together a loan package quickly. These are three identifiable and proven ways to improve your chances of getting a business loan.

Apply for a business Loan with your Business Name Instead of Your Given Name: For instance, use your business loan, “Sarah’s Block Company” versus your given name – “Sara Smart.” The reason you need to apply for a business loan in your business name is because it is a business loan – Not a personal loan. The banks and loan institutions are more than happy to help your business with a business loan, but they shy away from making a business loan to a person. Having a business that is a corporation or LLC improves your rate of success – For example, an S-Corp, C-Corp, or LLC.

Sole Proprietors have difficulty as business owners getting a business loan because they lack the same credibility of being identified as a ‘business’ that goes with a business formed as a corporation – A business that is complete with By-Laws, tax ID number and business bank account. A business portrays the ‘image’ of success better than a person does. It’s because of that, that lending institutions work better for those business people. As a sole proprietor, a person ‘appears’ to be acting in their own interests as an individual-instead of a business. Loans to sole proprietors are rated on the personal credit history and not a separate business history for the credit reporting agencies. That doesn’t look good to loaning institutions.

Even Corporations can mix up personal and business debt. It’s an easy trap to get caught in. Let’s say that you own a construction company and you get a construction loan to develop a piece of property, but use that money to make repairs on your personal home. Although there are multiple ways to justify this, the financial company won’t see it that way. Neither will the IRS agent at tax time. And there is a double penalty for doing this too – If you are audited and have mixed your expenses the IRS may choose to ‘dis-allow’ ALL your business expenses. You can see quickly that this could become the stuff people describe as, “the stuff that hits the fan.”

There are countless examples of mixing business with personal expenses – let’s say you get a business loan for a business computer, but you have some extra cash from the loan. You may think to yourself that you could get that new computer for the kids with the extra money – Bad choice.

On the other side of a business loan is a credit card in your business name. If you practice the same behavior with the credit card that you do the business loan, you will experience the same results.

The second thing to happen from this is that now you are taking a chance on damaging your personal credit score. This lower credit score affects all things with the passing of time. When you truly need the business loan – at a later date – You may not qualify.

Credit scores are a fickle bunch. They depend and rely heavily on past performance, previous and current balances and how close to your credit card limit your balance is (for example, do you have a credit limit of $500, and have charged $480 on that credit card? Consistently? This means that you are ‘always’ in debt at over 90 percent of your credit card limit).

At that rate, with a few of those over 50% of your total “AVAILABLE” balance listed on your credit history, your business loan approval rating goes down to about a zero. Available balance means the total balance you are listed as having access to – For instance, your balance is $250.00, but you have an available balance of $500.00, so (in theory) you could charge up to $500.00.

Don’t do it – Never charge your credit card balance over half of the total balance available to you. Even $1.00 will make a difference on your credit score (a negative one).

Another thing you might not know about credit scores is this: If you want to get the best deal on a car or any other item and you use a ‘credit broker,’ to help you. The job of a credit broker is to take your personal and business Identification and go shopping with your credit for the bet deal they can get you. As your credit is ‘hit ‘ with each inquiry from the individual ‘dealers,’ your credit score goes down an average of 2-4 points per inquiry, per credit bureau. That means if you went car shopping and your credit broker found 40 different credit buying ‘deals’ for you, your total credit score would be reduced approximately 80-160 total points per credit reporting agency. If you were marginal good credit before – Now your credit stinks. Plus, as your credit scores spirals down, the interest rate you qualify for goes up – Whoa! It’s a game for them. It stinks for you.

The ultimate outcome from all of this is that now you are ready to get a business loan. As the owner – or principal of your business, your banker needs your personal credit score to judge whether you are a good credit risk for your business loan. To complete that business loan with any success, your score must be a good one. This is a great thing to remember when you are beginning in business. It’s how you protect yourself that counts.

Get more than one business loan application from more than one lending institution – Not just one. Imagine that this is your business: You are a corporation with a clean credit record. You are new to business and have not yet applied for a loan in your business name, so you have no business history in debt repayment to reference for a business bank loan. Your company is expanding and you need to take it to the next level. You need a couple of additional employees and some specialized tools to manufacture and produce your product for the additional customers you have added to your lists.

Where in the world will you go to ask for that money? You have no loan history.

Don’t let a lack of business loan history stop you. Go ahead and figure out what you need to move forward and ask for several small business loans instead of one large business loan. Your chances of business loan approval are dramatically increased by using this method and you will gain experience with creating a loan history easier for about the same cost as one large loan for everything.

You may be better off to apply for an unsecured line of credit that could be based on your stated income versus a full-blown loan application process. Sometimes that’s key to whether or not you get the money you need and the approval you want. Not only are these lines of credit easier to get, because they offer fewer restrictions, but they will give you a business history to reference the next time you need to expand and grow your business.

Also, you could also use up to HALF of any credit card balances you have available to you as unsecured loans to get you going through that expansion phase. keep in mind credit card interest rates, penalties for late payments and other factors that may mess up your credit. Plan for the worst case scenario and have a back-up in place for that situation or it will haunt you.

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