The lockdown implemented as part of the measures to combat COVID19 has resulted in immense financial pressure on both households and businesses, who are turning to bank loans to be able to finance cashflow requirements in order to survive.
The few banks that are providing loans in Gibraltar are already inundated with applications and while their willingness to help businesses and individuals is definitely strong, they still have to abide by a strict set of risk evaluation criteria. However, the business environment has now become much riskier, and with credit ratios limiting the volume of loans local banks are able to provide, obtaining a loan has now become even harder. Indeed, getting a bank loan approved is not the easiest process. While there are several key areas lenders will be focusing on, it is important that you are ready to present the perfect, complete package for review if you hope to get approved.
At Benefit Business Solutions, we have recently assisted several businesses in obtaining loans from local banks in light of COVID19 difficulties. Here are our tips to making a successful application:
Do some Homework
Before heading to your bank, check out loan packages online and see what competitors are offering. You need to be aware of what kind of loan you are looking for, the terms you can reasonably afford, and your goal for paying off the loan as fast as possible. Check out the fine print before going further.
Know your limitations
If you are pursuing a loan, you should already be aware of your credit history and current financial obligations. Lenders today will rely heavily on your past usage of credit. If you already have a mortgage, car loan, used overdraft facility and credit card debt, your loan application is not going to be easy…Consider your financial limitations when planning for a loan. Apply for the loan based on your financial ability to make repayments you can honestly afford.
After you’ve done some initial research online, contact your bank directly to find out upfront what the requirements are for loan eligibility. You may need to make an appointment in person to discuss the necessary materials, documents, and timelines you will need to get started on the approval process. Banks have different requirements and it will be important to know what they are upfront, so you can be prepared. For example, most banks will ask for a Business Plan and Financial Projections when applying for a business loan. Make sure you have these ready, as without these your application is unlikely to progress.
Based on the information from the bank, it’s wise to create a checklist of the appropriate documentation needed for the loan application. It can take some time to obtain the documents you need from your Corporate Secretary, your employer, Government agencies and other sources.
Have the right expectations
Applying for a loan when you’re in a hurry is never a good idea. Loan officers have a certain protocol for approving a loan and getting you the money. During the process, make sure to discuss the sequence of events so you’ll have an idea of when to expect an answer. While some loans can be pre-approved upfront, the specifics may not be known until a few weeks have passed. Ask the loan officers for advice on following up. Your goal will be to secure a loan you have the means to repay. You may also need to outline the reasoning behind the loan. If it’s a personal loan, the bank might want to know how you plan to use the cash, for example, you may need it for home improvements or debt reduction. If it’s for a business, you may require the loan to pay suppliers, staff, rent and other business costs. The loan process can be a frustrating one and if the loan you applied for is not approved, the lender should provide the specific reasoning behind the denial. Be aware that unsuccessful applications will remain on your record and may diminish your chances of securing a loan in the near future.
Yes, it may come as surprise to you, but bank terms can also be negotiated. Bankers tend to respect borrowers who can read in between the fine print. If you are be able to compare loan terms for what they really are instead of listening to your lender tell you how great the terms are, you will be in a better position to negotiate. The idea here is making sure you gain respect and participate in the negotiations like an equal as opposed to being the pigeon. First, you must find out which aspects are highly important to you (non-negotiable) as well as the ones you are willing to negotiate. You should also know how far you are willing to negotiate. Ideally, you should only negotiate those loan issues that are less important to you.
In summary, when approaching the banks for loans the most important things is to be prepared in advance and have all your supporting documents ready. Having an experienced consultant alongside you to assist you in the preparation stage and also through the negotiations stage is always useful and can make the difference not only in the chances of succeeding but also in getting the best deal for you! In short, don’t go to the bank alone.