How to find the confidence to borrow

 

Borrowing can bring up a lot of feelings. The process can seem daunting if you’ve never been through it. Plus, you really have to believe in what you’re doing. A loan is a commitment. Getting a loan means putting your foot on the accelerator of your business.

This nervous energy can be useful if you channel it into getting the answers you need. The right capital at the right time can transform your business, but you can’t know what’s right until you’ve done your due diligence. Before applying for a loan, make sure you understand the process and why this loan is the game changer your business needs.

 

Demystifying the borrowing process

Think about the borrowing process from the lender’s point of view. It’s a risk for them, too. They need to know whether they can trust you and your business to pay back a loan. Think of the process as their way of trying to sort out that question.

That’s why lenders often ask for documents and information about your business. The more they can learn about you, how you run things and whether cash is flowing into your business, the more they’ll trust you. Lenders might ask for:

• Cash flow statements
• A balance sheet
• A business plan
• Tax returns
• Legal documents
• Credit scores
• Other financial documents and calculations

Establishing a banking relationship with your lender is a good way to start building trust, even before you start sending financial documents. It’s not a shortcut around the application process. But if you have a business bank account and a business credit card with a lender and you’ve maintained a good relationship over time, that’s a strong history to build on.

For many lenders, the decision to fund your business isn’t strictly a numbers game. A lender who’s willing to discuss your application and offer insights to help you strengthen your case is incredibly valuable, especially if they’re willing to advocate for your application with the underwriters who make the ultimate decision.

 

Investigate potential lenders

Gathering information can help calm anxious feelings. Asking a lender a few key questions may help you decide whether they’re right for you.

• Do they lend to businesses in your industry?
  A lender who’s worked with businesses like yours may have insight into what you need.
• What’s the total cost of the loan?
  Interest rates are only one part of the cost puzzle. Find out about fees and other charges that may be wrapped into a loan.
• Can you apply online?
  Online applications can speed up the process and take some of the headache out of the initial steps of applying for a loan.
• After you apply, how long will it take to get the funds?
  Knowing when the money will hit your bank account can help you create a plan to start using the funds as soon as possible.
• Is a personal guarantee required?
  A personal guarantee means you, as an individual, are personally liable for repaying the loan, even if your business goes bankrupt. It’s a common practice but one you should consider carefully before proceeding. Using business assets as collateral may also be an option.
• Are they an SBA preferred lender?
  Loans guaranteed by the U.S. Small Business Administration can be small or large. There are many benefits to an SBA loan, including broader eligibility requirements, capped interest rates and access to resource centers that can provide assistance.
• What do current and former customers say?
  What do people like about borrowing from this lender? What negative experiences have business owners faced? Is there a pattern? Consumer Reports, Consumer Affairs and WalletHub are a few of the places where you can find reviews.

With this information, you can compare options and determine which lenders you’ll be comfortable working with. You’ll also have a head start on understanding whether now is really the right time for your business to borrow.

 

Questions to ask yourself before you apply

Sometimes we’re anxious because we haven’t fully worked out what we need or why. These questions can help you firm up your case for borrowing or reveal that now is not the right time.

• How will this capital translate into a stronger business?
  You might know intuitively that a significant capital injection will help your business, but have you worked out the details? Take the time to map out how you’ll spend the money and what those investments will do. This will help you make your case to a lender. It might also cause you to hit the pause button to work out a few kinks.
• How much do you really need to borrow?
  It’s nice to have extra capital, but remember that you’ll be paying interest. Is your loan the right size for your project? Could a smaller loan give you more bang for your buck?
• Can you significantly grow your revenue with this loan?
  Some loans are for a kind of maintenance. You have a big expense to keep your business operating at the same level as always and are confident that your current revenues are sufficient to repay the loan. You’re probably not sweating that kind of loan.
  It’s the big move that can be nerve-racking. Ask yourself: Will this expense translate into new revenue that will exceed the cost of borrowing? Work out the numbers with conservative, moderate and optimistic projections. If you feel good about all three levels, your loan has a good chance of making a big difference.
• How much can you comfortably pay per month?
  If the payment will be difficult to pay each month, you’ll want to consider a longer term, a smaller loan or no loan at all.
• Are there alternatives that offer the capital you need?
  A term loan isn’t the only way to borrow. A business line of credit may be able to cover your capital needs, especially if the need is ongoing and somewhat variable.

 

No more FOMO

You don’t want to miss a big opportunity or regret your decision. By asking tough questions now and doing the work to get honest answers, you can apply for a loan with clear eyes and the confidence that comes with preparation.

Sometimes it helps to speak with someone who understands the challenges a business faces when considering whether to borrow. To learn more about the borrowing process, talk with a Chase banker in your area.