From the Nolo Business & Human Resources Center
Getting a Business Loan: Getting the Lender to Say "Yes"
When trying to get a business loan, it helps to view
things from the lender's perspective.
Bankers and institutions that lend money are often overly cautious in making
loans to small businesses because of their high failure rate. As a result, these
institutions have developed a lot of knowledge about the success rate of small
businesses, and they apply this knowledge when they approve and deny loans. For
that reason, it makes sense to study their approach, even though it may seem
discouraging at first glance.
The Banker's Ideal
Bankers look for a loan applicant who meets these requirements:
- For an existing business, a cash flow sufficient to make the loan payments.
- For a new business, an owner who has a track record of profitably owning and
operating the same sort of business.
- For all businesses, an owner with financial reserves and personal collateral
sufficient to solve the unexpected problems and fluctuations that affect all
businesses.
Why does such a person need a loan, you ask? He or she probably doesn't,
which, of course, is the point. Institutions who lend money are most comfortable
with people so close to their ideal loan candidate that they don't need to
borrow. However, to stay in business themselves, banks and other lenders must
loan out the money deposited with them. To do this, they must lend to at least
some people whose creditworthiness is less than perfect.
Measuring Up to the Banker's Ideal
Who are these ordinary mortals who slip through bankers' fine screens of
approval? And more to the point, how can you qualify as one of them? Your job is
to show how your situation is similar to the banker's ideal.
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