Bankers make loans (or not) based on the 3 C's:
CHARACTER
COLLATERAL, and
CREDITWORTHINESS
Although it may not seem this way at times, banks are in business to make loans. It's how they make money.
But bankers - as individuals - are cautious people. It's less risky to say "no" than "yes." If a banker makes a loan that goes bad, he or she will be criticized. Not granting a loan is less professionally risky.
The best way to get a loan is to make the banker's job as easy as possible.
1. Present a complete package of information that outlines your background (character) and explains how you will use the money. Go into detail as to how the loan will be repaid. If the loan is for a start-up business or entrepreneurial venture, show the upside. Explain how you will one day be a great (and large) customer for the bank.
2. Identify collateral that the bank can hold (put a lien on) and explain why that collateral should give them comfort. Collateral is the bank's fall-back. If you do not repay the loan, then they can levy on (take control of) the collateral. Show how that is great protection for them. Give them an appraisal or other valuation of the collateral. Explain how the collateral is worth much more than the amount of the loan. Explain how easy it will be for the bank to liquidate the collateral if it has to.
3. Creditworthiness could also be called "credit score." The bank is going to check with the credit reporting agencies. Be prepared to explain away any problems that they find. Don't try to hide past problems. Rather explain why and how they are no longer relevant. Have all the information the lender will want available: He or she is definitely going to want to see a financial statement and tax returns. The banker may also want to see verifications of your listed assets.
Credit scores are a big deal. They not only influence whether you get a loan, but also what the interest rate may be. Read 'No. 53 - 10 Simple Lessons on Credit Scores' to make sure you understand them thoroughly.
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