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Here are some simple tips that will help you make an informed decision about what kind of loan to get and who to get it from.
- First ask yourself if you really need a loan. Can you manage without it? Is it for something frivolous, like a holiday? Could you get the money by other means: part-time job, from a relative, the sale of an asset?
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- A loan varies according to:
- The amount borrowed;
- The interest rate;
- The type of rate (fixed or variable);
- Deposit (down payment);
- Associated fees (broker, origination, prepayment, etc);
- Insurance required by the lender;
- You are buying money for more than it cost the lender.
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- It's a mistake to only care about the interest rate; there are also arrangement fees and prepayment penalties to consider. Many ‘no fee' credit lines have a prepayment penalty. This is how brokers and lenders make their money. Work out the total cost of you loan before committing.
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- To ensure you get the best terms keep your credit-line as small as possible. Loan officers tend to count the total line of credit available as a liability.
- Pay off small debts before the due date. Cancel credit cards you are not using. Consider their interest rates and fees, when deciding which cards to keep.
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- If your spending is out of control, don't put your home at risk by getting a home equity credit line to pay off your credit-card debts.
- Shop for rates when the market is calm. Rates change from day to day, so compare lenders. The quotes you get should all be from the same time period.
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- Submit a neat application form; it shows you are business like and efficient. It will be read and assessed by a human being; appearances count.
- Only pay up-front fees to well-known institutions or ones highly recommended by trusted sources.
- Don't sign documents without reading them. As soon as possible, before you close the deal, review the documents you'll be signing and make sure you understand them, so you won't have to sign them in a hurry.
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- Keep a copy of every cheque you write for your loan. If you call your lender about your loan, make sure you get the full name of the person with whom you speak. Make a note of it. You may be dealing with a large bureaucracy and will need to refer to this conversation later.
- If you find yourself in a dispute with a lender, don't send correspondence to the same address you send your payment. You need to deal with the decision makers, not the account clerks.
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- Keep in mind that to stay in business banks need to make loans. Do not be afraid to ask for one. That is what the loan officer wants you to do. To increase your chances of getting a loan, look for a bank that is familiar with your industry and who has done business with companies like yours.
- Make sure that you are thoroughly prepared when you go to your banker's office to request a loan. You need to show your bankers that a loan to you is a low-risk proposition. Have on hand a completed loan application, copies of cash flow and financial statement projections covering at least 3 years and your cover letter.
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- Do not take an apologetic and negative attitude. Keep your negativity in check. Present yourself as an entrepreneur who can and will repay the loan. Boost your image by providing your loan officer with any promotional materials about your business, such as brochures, ads, articles, press releases, etc.
- Dress in a professional manner for the interview. This is a business transaction, so treat it as such.
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- Be sure all your documents are neat, legible and organized in a cohesive and attractive manner. Type all your documents. Handwritten documents look unprofessional. Don't forget to include a cover letter.
- Do not push the loan officer for a decision. Doing so might result in a rejection. Your banker cannot make a decision until all your documentation is complete. To ensure a speedy decision, make sure that your application is complete.
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- Be confident. An attitude of confidence enhances your chance of getting the loan. Show that you can make a success out of the money that the bank will lend to you. Visualize in your mind the positive results of your bank application.
- Keep trying one lender after another until you get your loan. To improve your position as you change bankers and banks, the best way is to ask for a referral from a successful entrepreneur. Before you decide to approach a bank directly, find an associate, friend or acquaintance that is in good standing with the bank to give you a good referral. Bankers tend to deal more favourably those who were referred to them by their best customers.
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- Remember that the first loan is usually the hardest to get. Bankers prefer to lend money to borrowers who have borrowed at least once and have paid back at least one loan on time. They are not venture capitalists that make high-risk loans regardless of the profit prospects of your business. Bankers prefer to lend to low-risk, low profit ventures than to high risk businesses or those with no record or accomplishment.
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