Turning Your Commercial Loan Request From Declined To Approved
Financing is among the most important resources for small and midsize businesses looking to ensure steady cash flow, purchase equipment, expand facilities, or acquire a competitor.
Yet too many companies miss out on this opportunity. Nearly a third (29%) of small businesses fail not for lack of effort or a good business plan but for lack of capital. Some may have been declined when trying to get a traditional bank loan or disappointed when the proposal was less than they needed. Others may find the whole process time-consuming and confusing, and may stop trying to borrow money or settle for a commercial lending relationship that’s less than what they need. “A year later, that shortfall could cause you to miss out on a promising new customer if you don’t have the flexibility of capital to meet a large new order in addition to your existing ones,” says Will Howard, head of Relationship Management at Foro.
“It’s easy to get discouraged and think, ‘we’re not a good enough company,’ when that’s not the case at all,” Howard adds. Fortunately, some straightforward steps to button-down your accounting could help you make a much stronger case, he says. Meanwhile, a sophisticated online lending platform such as Foro can help simplify the process, and pair your business with the bank or online lender most interested in a commercial relationship with your business.
Making your financial case to business lenders
Business loan application denial reasons vary. Perhaps you’re just starting out and lack sufficient cash flow and earnings, or you already have significant business expenses or debts, and lenders doubt your ability to repay your loan agreement. While these concerns may be valid—indicating you need more time to establish a track record to receive business financing — businesses often can improve their chances simply by formalizing their financial processes, Howard believes. This FAQ page can help familiarize yourself with the eligibility requirements and range of information that traditional banks and alternative lenders will need to know.
Meanwhile, consider these steps:
Appoint a dedicated bookkeeper
While young companies may rely on informal bookkeeping, “many lenders like to see professionalization of the management team,” Howard says. A chief financial officer is ideal, but smaller firms may simply need a competent, dedicated individual (not the owner or president) who can speak knowledgeably to a business lender about the company’s financial health, like monthly or annual revenue, financial statements, and business assets.
Understand your “coverage ratio”
To calculate your coverage ratio, compare your EBITDA (earnings before interest, taxes, depreciation, and amortization) against your total debt service, which equals the loan principal plus interest, including the business loan you seek. And be sure these measurements reflect the same time periods (ideally, trailing 12-month EBITDA and 12-month principal and interest). A ratio of, say, 1.2 to 1, will offer most lenders assurances of your ability to make your monthly payments, Howard notes. While banks will run the numbers themselves, doing so yourself could elevate your seriousness as a borrower.
Identify the right loan
From Small Business Administration (SBA) loans to short term loans, unsecured loans and loans for those with less than perfect credit, there are commercial loans tailored to each specific need. Before seeking financing, research all the options and consider how much you need and what you expect the loan to accomplish, Howard suggests. Foro’s overview of common loan types and terms could help you understand options and eligibility requirements.
Connecting with the right banker
Even companies with strong business credit profiles and assets may feel frustrated or disappointed, simply because they haven’t found the right “credit fit,” Howard says. The commercial loan officers they’ve spoken with don’t understand their industry, don't properly evaluate their business history, don’t work with companies of their size, or aren’t offering an attractive amount or annual percentage rate. “Many lenders might jump at the opportunity to finance your success. It’s just about finding them,” Howard says. They may be located in another city or state, or down the hall from the traditional banks or other lenders that declined you. But how do you find them?
If scouring the landscape for business loans feels daunting, you’re not alone. “Not only is the process too complex, it’s also time consuming,” Howard says. “Many business owners and executives don't want to be spending their days away from operating the business,” he says. Today, a powerful lending platform such as Foro’s can do that hard work for you, combing an entire nation of potential lenders. Think of it as a sophisticated matchmaking service, pairing business owners with banks or other financiers most interested in extending commercial loans. Among the advantages:
“Our platform gives both the business owner and the lender the scale to see a wide range of opportunities,” Howard says. “And our due diligence helps ensure that potential pairings are a good fit from a credit standpoint---giving both parties the best chance for a successful commercial relationship.”
Rather than completing multiple, complex applications for banks that may or may not be a good fit, businesses submit a single request answering a few basic questions in order to connect with many lenders who have expressed an interest in speaking with them.
There’s no charge to businesses seeking bank loans; banks pay for platform services that save them money by streamlining their search for borrowers.
Your financial information is securely protected and you are under no obligation to work with banks that respond.
Access to expertise
Foro’s platform service can help take the mystery out of borrowing, by offering licensed professionals who can advise you, especially if you require complex financing.
The same technology that connects your business with commercial lenders can also pair you with potential accounting services, wealth managers, attorneys, and other professional services firms that your company may need along the way.”
Borrowing money, just like running a business, will always contain uncertainty, and there’s no guarantee you’ll be offered a business loan in the amount and at the annual percentage rate you desire, Howard notes. Yet by addressing some business fundamentals and putting the power of advanced technology on your side, you may find new avenues to gain the financing you need to drive more business revenue and take your business to the next level.
For more tips on acquiring the financing you need, see Foro’s blog post. And please visit Foro.io to see how a powerful search platform could transform your search for the best financing.
About The Author: Charlie Slack
An award-winning business and financial writer, Charlie Slack is co-author (with Reed Phillips) of QuickValue: Discover Your Value and Empower Your Business in Three Easy Steps. (McGraw Hill, 2021). He is also the author of four mainstream books, most recently Liberty's First Crisis: Adams, Jefferson, and the Misfits Who Saved Free Speech (Grove Atlantic, 2015).