NFIB

Borrowing 101: Never Prepare a Loan Request Under Pressure
01/ 22/ 2004

by Jeffrey Moses

When you're strapped for cash, applying for a loan at the last minute can raise red flags for lenders, as well as result in errors in your own calculations. Instead, give continual attention to your projected revenue flow and costs, looking ahead three to six months to make sure that you have the necessary financial resources. When you see that you're likely to need extra cash, prepare a loan request immediately -- before you're actually short of money.

It's important to avoid waiting until the last minute to prepare a loan request. When you're in a cash crunch, it's much more likely that:

You'll make an error in the amount requested. Haste too often results in inaccurate calculations or projections. You may overlook an upcoming expense, or not have complete information regarding the amount you really need. Having to correct this later makes you look sloppy -- and certainly will not help your position with the lender.

Your loan request will have a feeling of desperation. Two fundamental rules of finance are that lenders don't like to make loans to businesses that desperately need the money, and that lenders prefer working with businesses that present their loan requests in an orderly, non-hurried way. When presenting a loan request, saying that you'll be out of cash by a certain date is a red flag to lenders -- especially when the date would hurry the normal time of review and approval of the loan.

Establishing a strong relationship with lenders is vital. Ideally, your company should establish an ongoing line of credit with a lender, so you can borrow as needed. A line of credit enables you to borrow without preparing a loan request each time you borrow. This means that you won't have to prepare specific information about the use of funds, amounts to be borrowed, payback schedules and collateral.

There may be times, however, when the amount of funds required exceeds the established limits of a line of credit. In such instances, you'll need to prepare a specific loan request, or at least work with your lender to adjust your borrowing limits. The more advance notice you give, the easier it will be for the lender to review and approve the loan.

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