How to Qualify for a Loan When you Don’t Qualify for a Loan
Up until recently, I had always thought that banks follow their strict underwriting rules, and if you didn’t fall into the ratios, you were simply out of luck. I had heard that sometimes banks bend the rules, but figured that was a rare exception, and it really was just about the cold, hard numbers.
I was talking to a friend of mine, I’ll call him Jay, about this. Jay had built several seven and eight figure businesses, and his experience with getting loans was completely different than mine. He said getting a bank loan was all about the relationship, and all about confidence.
I had never seen a relationship or confidence close a loan, so I asked to tag along with him on his next banking request to see how it was done and I was AMAZED.
It really is true. Having a relationship with a bank and presenting the details with confidence trump numbers. Here is how to get a loan when you don’t qualify.
#1 Choose a Small, Community Bank
National banks still have some flexibility in loaning if the banker really likes you and they can pitch your cause to the underwriter, but more often than not, the underwriter will stick with bank guidelines and follow the numbers.
Enter community banks. Especially banks who specialize in small business loans. How do you know who specializes in small business loans? You ask. “I am looking for a bank, and want to find a good fit for my needs. If your bank specialized in one kind of loan in particular, what would that loan be?” If multiple people from that bank tell you they specialize in everything (mortgages, small business, car loans, etc) move on. All banks offer all of those types of loans, but you really want a bank that specializes in small business.
#2 Choose a Bank that Holds Loans In-house
If you work with a national bank, there is a good chance that they will sell your loan after you close. While it might not seem like it would matter, the underwriting process will be more strict if they are planning on selling your loan rather than keeping it in house. Ask this question right up front, and move on until you find a bank that holds their own loans.
#3 Take Your Time
When I visited the bank with my friend, the experience was completely different from anything I had done previously. He actually went into the bank, sat down with a banker, and spent over an hour chatting with him. He didn’t talk numbers at all beyond how much he needed, and really just developed a relationship with the banker.
#4 Show Confidence
I had always heard from bankers that it is best to tell them upfront about everything on your books because they will discover it all anyway–tell them fully about the good, the bad, and the ugly.
Jay thought my idea was funny. The business he was getting a loan for had slim profits the year before, and I asked him if he was going to address it upfront. His reply? Nope. If they have questions they will ask. His strategy was just to show up completely confident.
#5 Ask the Banker to Sell You
One of the strategies that Jay used while talking to the banker initially was to spend time talking about all of the business he would be sending to the small bank. He asked about how their checking worked, what their merchant account rates were, and employee credit cards. He asked about their online banking platform. He told the banker that if he were to get a loan through them, he would be moving over all of the businesses banking to them, and he wanted to make sure they would be a good fit. He asked the banker to sell him on banking with them.
Jay just closed on his loan. And I learned a great lesson. In business, even LOANS aren’t strictly by the numbers. Everything in business has a human component. Use that to your advantage!
We will review many different financial products (ie types of loans) and how to use financing to grow your business at our Business Intensive Retreat. Many businesses in the 100K – 500K revenue range are still too scared to use outside financing. If you would like to see significant business growth this year and are in this revenue range or above, you will need to get comfortable with debt investments. It is part of playing BIG in your business!