12/ 27/ 2005
by Jeffrey Moses
When approaching lenders, you must understand their thinking––not just what they’re looking for in terms of collateral and credit worthiness, but what actually motivates them to approve or turn down a loan request.
Loan officers at banks, the primary source of business financing, have two factors in mind when analyzing a loan application: How likely is it that this loan will be repaid? And, will approving this loan make me look bad to my superiors?
Remember that loan officers are concerned with their own careers. When bank officers examine their list of loans or loan requests, they don’t want to appear as though they’ve made a mistake by overlooking something in the loan application or by approving a loan to a business that may have trouble repaying. Ultimately, they don’t want to look bad by making a loan that ends in default, late payments or other conflicts.
This does not imply that loan officers are heartless or are looking only after their own interests. They, like all of us, want to do a good job and, in the process, serve others. But they also want to look good to their supervisors. They want to advance in their careers–– and, therefore, want to be certain about loans before approving the funding.
With this in mind, put yourself in the place of the lender before applying for a loan. Ask yourself what you can do to make it easy for the lender to approve your loan. In other words, ask yourself what you can do to ease any emotional uncertainty the lender may have about your request.
When you put yourself in the mindset of a lender, all of the obvious components of a loan application make sense. The business plan, collateral, credit history, sales history, existing debt and payment structure, personal debt and personal credit history––these and other standard elements of a loan application are all important because together they ease the uncertainty of the lender.
Looking at the loan approval process in this light, you can also understand why the character of the borrower influences lenders. (Remember the Three C’s of borrowing? Credit, collateral and character). Even if all the credit and collateral numbers add up, uncertainty can still exist in the lender’s mind if the character of the borrower is questionable. While character alone cannot secure a loan if the numbers don’t add up, quite often giving a positive, professional impression to a lender can seal the deal.
So think like a lender when planning your loan application and presentation. If you can remove the uncertainty from the lender’s mind, it’s likely that he or she will feel confident adding your loan to the list that will reviewed by bank officers.
