How can you convince your bank to grant you a loan? - MeetAnEntrepreneur (2024)

These days, it is not uncommon for entrepreneurs to run aground because they are unable to anticipate their daily financial needs. They draw up a financial business plan, but it does not take daily cashflow needs into account. Did you know that most new businesses that vanish within their first two years fold due to cashflow problems, not profitability? After all, entrepreneurs have a lot of bills and salaries to pay even before their first revenues come into sight.

To assess daily/weekly needs, you will need to draw up a liquidity plan: a chart that shows all outgoing and incoming payments expected in the first (and following) years, broken down month by month. Bank financing is often an easy solution to liquidity-related issues. Easy, yes. But not always that easy to get. Bank financing can also come into play for a rent guarantee, to fund a commercial space or to rent a vehicle via a finance lease.

Which elements are key for convincing your bank to get behind your business model?

What you need to realize is that a bank is a company similar enough to your own. You sell a service or product; a bank loans money. A bank’s income is derived in part from the interest you pay them, so bankers do everything in their power to make sure they’ll recover the loaned money.

In a bank, every client who takes out a loan is a potential financial risk. The bank representatives you deal with use your figures, comparing them to statistical data, to back up their decision. In theory, the higher the financial risk, the more your loan will cost you (and the higher the interest rate will be). That is why it’s in your best interest to provide all tangible information to your bank, to give your banker confidence and demonstrate a certain degree of security - which will help you get a better rate. If you want to use your banker’s frame of mind to your advantage, provide hard data in figures from the very beginning of your loan application process.

How can you convince your bank to grant you a loan? - MeetAnEntrepreneur (1)

What documents should you show?

Your business plan or business model canvas complete with a 3 to 5-year financial plan. It’s up to you. What really counts is having a business plan. To clear things up, the main purpose of a business plan is not to persuade banks and potential investors – it’s to help you! The way I see it, a business plan is an essential document when launching a business, and down the road too… and for financing large scale investments!

There are many reasons to draw up a business plan:

  1. above all else, you write a business plan because you need it
  2. your banker will inevitably ask for it
  3. it is essential for persuading investors
  4. it pledges the seriousness of your project
  5. drawing up a business plan is easy and inexpensive
  6. a business plan confronts the reality of your project
  7. a business plan helps anticipate risks and threats

To show your financial profitability, you will need to include a complete business plan describing your activity sector, the products/services you intend to offer, your targeted market, distribution channels… you will also need to include an accounting document (a provisional “Profit and Loss” table), presenting all expenditures (what the company will have to pay out) and receipts (what the company will earn). This table will allow your banker to determine your debt capacity.

How to prove your creditworthiness?

  • Equity:

To a bank, an injection of own funds is proof you believe in your project, that it’s viable and realistic. It testifies as to how serious and committed you are and limits the bank’s risk exposure.

  • Offer collateral:
    • Banks always require collateral. Collateral-free loans are extremely rare and near impossible for an entrepreneur.
    • Propose collateral: a building or apartment you own, personal securities (personal liability), third-party guarantees (mutual companies, the European Investment Fund).

How can you convince your bank to grant you a loan? - MeetAnEntrepreneur (2)

Which assets to promote:

What is most important in your project is your personality. Put yourself out there. You are the project holder and the banker will want to assess your worth. So don’t forget to tell them about yourself and showcase the value you bring to your project: your qualifications, training, professional experience…

In short, the key items for your bank/investor meeting are:

  • Being prepared
  • Having good knowledge of your file
  • Ensuring your application is complete and up to date
  • Presenting realistic figures (draw comparisons with competitors, ask that they be verified by an expert…)
  • Being realistic!

This article has been written by Jean-Luc Bermes, head of the SME division at Spuerkeess, as part of the collaboration between Spuerkeess and nyuko.

How can you convince your bank to grant you a loan? - MeetAnEntrepreneur (2024)

FAQs

How can you convince your bank to grant you a loan? - MeetAnEntrepreneur? ›

To show your financial profitability, you will need to include a complete business plan describing your activity sector, the products/services you intend to offer, your targeted market, distribution channels… you will also need to include an accounting document (a provisional “Profit and Loss” table), presenting all ...

How to convince a bank to give you a loan? ›

5 Tips for Creating a Convincing Forecast for the Bank
  1. There is an old saying that banks only give money to companies that don't need it. ...
  2. First, Build a Real Relationship. ...
  3. Know the Numbers. ...
  4. Explain How You Made Your Forecasts. ...
  5. Show How They Get Their Money Back. ...
  6. Personally Guarantee the Loan.
Jan 28, 2016

Can I convince my bank to give me a loan? ›

Banks will want to see a good (but brief) business plan, with a clear focus on how you'll be able to pay back the money you want to borrow. Remember that the banks want to lend you money, as long as they are confident that they'll get it back because that's how they make their giant profits.

How can I impress my bank for a loan? ›

Showing that you have concrete plans on how you're going to use every dollar of their money in a way that will provide a good return for their investment is the best way to get the funds you need. You'll want to specifically state what the capital is for, whether to expand a factory or make an acquisition.

How do I get my bank to give me a loan? ›

How To Apply for a Bank Loan
  1. Check your credit. Most personal loans are unsecured, so banks require good credit to qualify. ...
  2. Determine how much you can afford to borrow. ...
  3. Prequalify for a loan, if available. ...
  4. Compare loan offers. ...
  5. Submit a full application. ...
  6. Receive your loan funds. ...
  7. Start paying back your loan.
Feb 22, 2023

How does a bank decide to give you a loan? ›

Lenders need to determine whether you can comfortably afford your payments. Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered.

How to write a proposal to a bank? ›

How to write a business proposal for a bank loan.
  1. Business overview. Introduce your business with its name, legal structure, and establishment date.
  2. Mission. Articulate your business's purpose and long-term goals.
  3. Market analysis. ...
  4. Company history. ...
  5. Contact information. ...
  6. Leadership team. ...
  7. Legal structure. ...
  8. Products/services.

What is the best reason to say when applying for a loan? ›

There are many reasons why people apply for personal loans. These include: debt consolidation, medical and dental expenses, IVF treatment, home repairs/improvements, weddings, large purchases (like appliances or furniture), car repairs, and more.

What to say to the bank to get a loan? ›

Your banker will need to understand some general information about your request, such as:
  • How you plan to use the money.
  • The amount of money you are requesting.
  • Your desired loan terms.
  • How you plan to pay back your loan.
  • And collateral to be used.
Aug 17, 2020

What not to say when getting a loan? ›

Here are a list of 10 things you should not say to your lender:
  1. 1) Anything untruthful.
  2. 2) What's the most I can borrow?
  3. 3) I forgot to pay that bill again.
  4. 4) Check out my new credit cards.
  5. 5) Which credit card ISN'T maxed out?
  6. 6) Changing jobs annually is my specialty.
Mar 10, 2023

How to negotiate a loan with the bank? ›

However, there's a range of negotiation strategies you might try.
  1. Ask your lender to reduce your interest rate. ...
  2. Ask about forbearance. ...
  3. Work with your lender to create a repayment plan. ...
  4. Look into debt consolidation. ...
  5. Ask for a reduced, lump-sum payment.

How can I increase my chances of getting a loan? ›

A good or excellent credit score gives you the best chance of getting a personal loan with attractive terms. If your credit score isn't up to par, try improving it or finding a co-signer to help boost your approval odds. The amount you borrow and your debt-to-income ratio also play a role in the lender's decision.

How do you ask for a loan successfully? ›

The key is to get as specific as possible. For instance, if you need $700 for a car repair, tell your lender that the money is for that reason. You should also map out a repayment plan, like paying them back $70 a month for the next 10 months.

Which bank gives a loan easily? ›

HDFC Bank offers pre-approved loans to customers in 10 seconds flat*. Non – HDFC Bank customers can get loans in 4 hours.

What is the easiest loan to get approved for? ›

What is the easiest loan to get approved for? The easiest types of loans to get approved for don't require a credit check and include payday loans, car title loans and pawnshop loans — but they're also highly predatory due to outrageously high interest rates and fees.

Why won't my bank give me a loan? ›

You have late or missed payments, defaults, or county court judgments in your credit history. These may indicate you've had trouble repaying debt in the past. You have an Individual Voluntary Agreement or Debt Management Plan. This might suggest that you can't afford any more debt at the moment.

How can I increase my chances of getting a bank loan? ›

A good or excellent credit score gives you the best chance of getting a personal loan with attractive terms. If your credit score isn't up to par, try improving it or finding a co-signer to help boost your approval odds. The amount you borrow and your debt-to-income ratio also play a role in the lender's decision.

What is the best thing to say to get a loan? ›

What are the common reasons for taking out personal loans?
  • Home improvements.
  • Wedding costs.
  • Car purchase.
  • Special holidays.
  • Emergency expenses, such as unexpected damage to your home.
  • Consolidating other loans or debts.
Apr 29, 2024

Can a bank refuse to give you a loan? ›

Every lender is different, and each one has its own criteria. The good news is that if you're denied, the lender must provide you with an adverse action notice that explains what information was used to make the decision. 1 Below are some of the common reasons why your loan application might be denied.

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