05 Dec 3 Things You Should Avoid Saying To Small Business Lenders
Applying to small business lenders can be difficult sometimes, especially if you are on the borderline of their lending criteria.
Lenders establish “listening posts” or “red-flags” seeking out triggers in conversations to alert them to any hints that something might be not quite right with your application.
Lenders use lending criteria such as time in business, revenue, credit files and other factors to find weed out businesses, like yours, to lend money to. Even if your business fits their lending requirements, some small business lenders can potentially turn off borrowers from one conversation. You need to be aware that saying some misdirected things even if when you don’t mean to or are simply trying to oversell your application can end up in a rejection.
In my past years selling financial products I’ve even had borrowers say directly to me that they did something naughty with their financials and not to tell credit when they apply or that some of their invoices were going to be taken out after the application was approved to inflate their turnover. You can imagine my reaction “sure, let’s keep that between us”, their application was quickly declined. There’s never a dull moment in finance and when your making application there is no point in trying to shift the reality as lenders always discover through their due-diligence.
Here are three common phrases to avoid in conversation:
How much can I borrow (or get)?
Seem like a pretty common questions to ask, you’re thinking if I ask them then I have a starting point to work with. The lender will think differently.
Lenders like to know that you have your ducks lined up, you know how much money you need today or forecasting based on something tangible and will have the ability to repay the loan. Asking the lender straight up, will instill doubt into their mind that you haven’t planned or thought it through and are likely a timewaster or worse you will borrower too much money and will eventually default.
I have a great idea! Or I want to buy a business I heard about
As an entrepreneur you’re always enthusiastic about your business idea, how it will build and grow into something great, however lenders don’t go for ideas. Lenders look only at real facts with supporting data or documents. They provide debt, debt that needs to be repaid with a clear understanding of how that’s going to happen. Applying to a lender and complaining that no one will give you a go will only result in you finding a potential sympathetic ear with no money.
If you don’t have revenue or assets to offer then your likely fall back loan option is a personal loan or if you can obtain some forward orders (purchase orders) to show a lender how the money will be repaid before you’ve started bringing in any real revenue to base a loan on.
I can’t tell you that right now it’s confidential
Lenders have seen every possible scenario, profit you’re making, supplier terms, manufactures terms, supply contracts etc. and if they haven’t its likely they won’t want to lend against it.
Not disclosing or saying you can’t offer up information to a lender is by far the fastest way to make the lender grumpy. You’ve approached them for a loan but you can’t tell them all the details?!
If you’re trying to borrower money for a new project or to import some products and you can’t tell the lender how much you’re going to make, firstly they won’t know if you can afford to repay the loan and secondly you’ve just given the lender the perception that you like to hide things or worse yet you ask them to sign a non-disclosure agreement which lenders will never agree to signing.
Lenders have an important responsibility; to make sure loans get repaid. Even when they may seem unfair, it’s for a good reason. My goal is to get you as educated as possible when apply for loans, get your applications approved and grow your business.
If you have any questions ask me below or on facebook.com/loandesk
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