When it comes to getting a loan, whether it’s alternative lenders, established banks, or credit unions, the process is constantly evolving as financial institutions find ways to address the needs of borrowers who don’t fit the traditional loan applicant profile. If you’re self-employed and looking to get that first business loan, follow these tips to make sure your case is as strong as it can be.
1. Make Sure the Bank Understands What You Do
Before identifying the lender you think is the right fit for you, make sure your business looks established and prosperous–for example, a clean, clear website that defines your product or service–can help. Ensuring that your lender understands what you do is critical for any negotiation that takes place as the loan process gets underway.
2. Back It Up With a Detailed Business Plan
Next, write a business plan. A formal business plan helps the lender to see that you’ve thought through what your business needs are.
3. Prepare Your Business’ Financial Statements
The third step is to prepare your financial statements. If you’re in business, a bookkeeping system like QuickBooks is critical. Without it, no lender will take you seriously as a business risk.
4. Consider Preparing Your Personal Financial Statements
If your business shows a tax loss, consider showing your lender copies of your bank statements. Write an outline of your cash flow, showing how much money the business pays towards your living expenses—rent, utilities, car payments, vehicle operating expenses. That helps them see that you really can afford to make your loan payments.
Having these preliminary things done will help you look good to a potential lender.
5. Ask Your Potential Lender the Right Question
With all that in place, it’s time for you to get an idea of who they are. Your questions should address access. This might begin with “When working with your institution, …”
- “…will I have access to a personal banker—one that gets to know me, and vice-versa?”
- “…can I call customer service at hours that are convenient for me?”
- “…will I be able to do online banking?”
- “Make deposits by scanning my checks with my smartphone?”
- “See my statements online?”
- “Get copies of deposits and cancelled checks for at least three to four years?”
- “Are there extra fees for this?”
- “Are there fees for paper statements?”
Then there are questions that pertain to how much leeway a lender can provide. These questions might include:
- “What is the maximum loan you can approve for me, without going to committee?” (Bank managers have a certain level of authority on their own discretion.)
- “With what level of loan balance do you need collateral?” (If it’s not a car or equipment loan)
- “Can I get a loan without any prepayment penalties? When I have extra cash, I’d like to pay my loan off.”
- “What is the best interest rate you can give me?”
- “Can I get a better rate if I have an account with your bank?”
- “Can I get a better rate if I have automatic payments coming from my bank account? And can I determine the due date of each payment?”
- “Is there anything else I can do, or show you, to bring the interest rate down?”
Also, don’t forget to ask about fees.
- “Since I want to open a business account with you, what are your minimum monthly fees for my business account?”
- “Do you have ATM fees?”
- “How can you help me get all or most of these fees waived?”
- “What minimum balance must I have?”
- “Can I link some savings or investment accounts to get fees waived?”
- “Do I get credit if family members have accounts with you?”
Don’t just look at brick-and-mortar banks, or online banks. Look at credit unions, as well. They may offer excellent loan rates and low fees. Whatever your choice, make sure you find a bank that not only offers you good repayment terms, but is responsive to your needs and treats you with respect.