Tips for Approaching a Bank for Business Loans

Obtaining bank business loans to start a business is easier said than done. Bank loans can be used to begin a new business or augment funds for an existing business.  In today's market, many banks are tightening their belts and are very strict about lending their money. Below are a few tried and tested tips to help you succeed when applying for a business loan.

Clearly State Why You Need a Loan

In order to secure a business loan, a borrower must complete the loan application properly and be clear about their purpose. A borrower must demonstrate to the bank that a need for the money and ultimately a profitable venture.  The first step to begin with is a well-prepared business feasibility study. This document will establish the need for the loan and how and if the proceeds of the loan will fit into your business.

Remember, banks are not charity institutions, and do not give away financial assistance for free. Banks expect that they will get back their money at a good interest rate.  It is important to show them that you can give them a good return on the loan they will extend to you.

Explicitly Declare the Amount You Want

Be specific with the amount of loan that you want to borrow. Being clear about your objectives and required amounts will establish that you have a well thought out business plan. Just be sure to ask for the correct amount of money.  It is always better to overstate the amount of funds required.

Prove Your Capacity to Repay

Banks want to see ability and want to know that the loan they provided will be paid.  Your loan officer will require that document ability to repay.  Addtionally, most banks require industry experience, they will even review your educational attainment and/or the caliber of your business management team. All components listed are important parts of your business and how it runs, so they will pay close attention. 

Back the Loan with Security

Banks earn a huge portion of their income by extending loans to borrowers, however the loans are also considered high risk.  In order to have your applications approved quickly,  you can provide collateral to secure your loans. If you can reduce the bank's exposure to unpaid debts, they will be more apt to lend you money. You can use your business or personal assets as collateral for your loan.