How To Get Loan Application Approved

The following are question and answer about How to Get Your Loan Application Approved :

How Is The Lending Climate For Small Business Changing?
Credit is coming back to midsize and larger companies faster than small businesses. That's because small businesses are riskier. . .  Small businesses should benefit from general economic conditions improving and, as that happens, lenders should feel comfortable taking on more risk and making more small-business loans.

Can You Talk About Recent Legislation That Might Help Entrepreneurs To Find Loans?
The Small Business Jobs Act of 2010 expanded several Small Business Administration loan programs significantly in terms of the size of loans and the kinds of businesses that are eligible. For example, The SBA's 7(a) program had been capped at $2 million per loan, and now those loans can be made for up to $5 million. As entrepreneurs start to think about expansion and do their lease-versus-buy analysis, now is a good time to buy property. But $2 million often doesn't cut the mustard [to buy commercial space]. So $5 million gives some business owners the opportunity to borrow, not just for working capital or capital investments, but also for real estate.
Also the CDC/504 program used to be just for new business and real estate. Now you can refinance an existing loan, so they've expanded that program, too.
Separately, the Jobs Act also made $30 billion in funding available for qualifying banks to use to make small-business loans, and that money is starting to become available.

How Will The SBA-Backed Loan-Application Process Be Different Than It Was Three Years Ago?
You need to be prepared to have more skin in the game. You can't put 5% or 10% down and get a loan. Those days are gone. If you want someone to lend you money, you need to share the risk, and in a painful way. Depending on the lender, you should expect to put up 20% to 25%. With SBA-backed loans, the down-payment rates are lower, but even with these loans, some lenders were doing 100% financing a few years ago, and now that's no longer possible.

Any Advice For Winning The Loan You Want?
Stick to what you know. Entrepreneurs are innovative and love to do creative things, but now is not the time to go way outside of your box. Then it comes down to good financial planning. Make sure your financial records are well-organized. You need financial statements or three years of tax returns, and a business plan that explains what happened over the past two years. You need to know what you want to do and what it takes to do it, then figure out what it's going to cost. You have to have a good, realistic plan. Don't ask for less than you need. But don't over-leverage yourself.

What's The Biggest Mistake You See In Loan Applications?
For a startup or a business that wants an expansion, they can be overly optimistic about the timetable, how fast those cash flows are going to come. Lenders are focused on that. They want to make sure your business cash flows. They want to make sure your plan is realistic and will cover your debt service and leave money left over for the entrepreneur to live on

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Where to Get a Small Business Loan

Money still isn't falling off trees for small businesses, and the lending seas can be a challenge to navigate. Although you need funding, you want to make sure your deal is better than the one offered by the neighborhood loan shark.
If you want to expand your business, you're going to need some cash.

Money might be available thanks to stimulus spending, but that doesn't mean it's easy to get.

"The [banks] have tightened their lending policies, and it is more difficult for an entrepreneur to get financing,' says Velda Eugenias, a certified financial planner with Eugenias Advisory Group in Gadsden, Ala. "It is causing the small-business owner to have to get creative with finding sources of capital.'
Here are a few options:

• Traditional bank loans
  Your local bank can offer low interest rates and long repayment plans. Sounds good, but some entrepreneurs have found that stricter underwriting guidelines make it nearly impossible for these loans to be approved.
  
  "The negative to a bank is that the loan can often be very hard or next to impossible to obtain,' says Rick Kahler, a certified financial planner with Kahler Financial Group in Rapid City, S.D. "Also, most bank loans are 'recourse,' meaning if there is a default, the bank can go after your personal assets as well as any collateral secured by the loan.'
  
  Every bank's lending requirements are different, so shop around. Start with your personal bank. If a banker knows you, he or she may offer additional help when you apply.
   
• Government loans
  Like traditional bank loans, loans with a government guarantee can be tough to get, and the process can be painstakingly long. It's not uncommon for potential borrowers to bail before the loan is approved.
  
  If you can get a government loan, you'll find low interest rates and long repayment terms.  
• Loans from family and friends
  No one wants your business to succeed more than your loved ones or good friends, so your nearest and dearest may be a good funding source. In return for the loan and your gratitude, your new lender could receive a decent interest rate on the loan--better than a bank CD or money market fund.
  
  Make sure you do it right. Draw up a contract or promissory note for the loan with specific repayment terms so that you don't run afoul of the IRS. (If you're offered an interest-free loan, the IRS can actually attach a rate to it for you--or even decide that the loan was a gift, which will have tax consequences.)
  
  Anytime you mix business and personal, though, you risk hurting your relationship.
   
• Your home
  Home equity is one of the quickest and easiest ways to obtain cash, but that's what got so many homeowners in trouble during the past few years. Since then, banks have cut home equity lines of credit and have imposed stricter loan-to-value ratios.
  
  If you have home equity available, use caution before putting your home on the line.
  
  "If things go wrong with the business, you could end up losing your home, as well as being held personally responsible for the repayment of any shortfall,' Kahler says.
   
• Credit cards
  Personal and business credit cards can seem to be an easy solution to your borrowing needs, but they can be costly, with interest rates exceeding 20 percent--a huge spread over a bank loan. Also, business credit cards are not subject to the new CARD Act rules that apply to personal credit cards.
  
  Use credit cards sparingly and not for long-term financing.
  
  "If you have a short-term need for a purchase that you are 99.9 percent sure you will have the money to pay off the credit card when it comes in, then it is a good use of your resources,' Eugenias says.
• A partner
  If you're willing to share your future successes, consider a partner who can pour some money into your business.
  
  "Select a partner as you would a spouse, only more carefully,' says Kahler.
  
  While a partner could bring cash, she could also bring her own ideas about how to run your business. You'll have to be willing to share, and you'll need to draw up some specific legal agreements outlining the partner's role in the company.
   
• Less-traditional funding
  Websites are popping up that allow consumers to offer loans. For example, Prosper.com sets up potential borrowers and lenders who agree to three-year unsecured loans with fixed interest rates. Borrowers post how much they'd like to borrow and the maximum interest rate they'd pay, and potential lenders bid on loans.
  
• Your retirement accounts
  This should be the funding source of last resort. You've set money aside for your future and although you hope your business venture will add to your future, it's an enormous risk. If the business goes under, you can kiss your nest egg goodbye.
  
  Some 401(k) plans offer loans against your plan's value, and through payroll decusions you make payments on the principal and interest. But if you lose or leave your job, most plans require that the entire loan be repaid immediately.
  
  If you choose to withdraw funds from an IRA or 401(k) before age 59 1/2, you'll be subject to taxes and penalties, making this source of cash very expensive indeed.

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How to Avoid Mistakes When Applying For a Loan

KeyBank is being honored as the large bank that supported the most jobs with its SBA lending, making the most loans and loaning the most dollars to underserved markets and utilizing the most SBA programs. Meanwhile, Open Bank is receiving the accolade as the small bank that approved the most loans and dollars. It also was recognized for approving the second highest number of loans to underserved markets.
As part of National Small Business Week, Cleveland, Ohio-based KeyBank and Los Angeles-based Open Bank will each receive a 2012 7(a) Lender of the Year Award by the Small Business Administration on Monday in Washington. (The SBA's flagship lending program is known as 7(a).)
Of course, getting a loan from a bank is no cakewalk these days, particularly for small businesses. So, we asked those banks, which make it their business to lend to small business, how entrepreneurs can increase their chances of securing loan dollars.

Here,  top 4 mistakes business owners make when applying for a loan -- and how to avoid them.

Mistake #1: Underestimating the value of personal credit. 
Bankers look at your personal credit history (credit cards, mortgage payments and personal bills) to get a sense of your track record with financial responsibilities, says Michael Toth, Senior Vice President of Business Banking at KeyBank. “If a business owner hasn’t shown the diligence in managing their personal credit, there is potentially a stronger likelihood that they will take the same approach to their business credit,” he says.

Mistake #2: Applying for the wrong type of loan.
One of the most notable pitfalls Toth sees is small business owners using credit intended for a short period of time for a long-term purchase, or vice versa. “They will use the wrong type of credit product for the wrong type of purpose,” says Toth. For example, if you buy a piece of machinery with a loan that was intended to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under.

Mistake #3: Expecting a loan without collateral or a plan to pay it back. 
A banker won’t approve a loan that he doesn’t think has a chance of getting paid back. So be sure to detail in your business plan how you are going to make the revenue to pay the loan back or any collateral you have to back it up. Also, be sure to explain why the loan is critical for your business. “Make sure there is a solid business plan as to what they are planning to do with their business and how the financing will support the mission for the company,” says Toth.

Mistake #4: Waiting too long to approach a banker.
Small business banking is about relationships. Toth says there's a much better chance bankers will lend you money when you need it, if they already know who you are and what your business is. Not only will you develop that face-to-face relationship, but you will also have the opportunity go get your business financials organized and in shape with a banker’s eye in mind.

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Src : http://www.entrepreneur.com/blog/223585#ixzz2du1Aqk2Y

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