5 Mistakes to Avoid with a Bank Loan approval

5 Mistakes to Avoid with a Bank Loan approval

Getting a loan from a bank is no cakewalk these days, mainly for small businesses.Though borrowing from a financial institution will actually expand your working capital.

Every banker is aware of that there is each probability that a borrower may not be able to repay a loan he or she has borrowed even with desirable intentions hence, they set aside a portion of their future profit to supply for a viable loss of the loan amount.

Most banks won’t approve a loan that they doesn’t think has a chance of getting paid back, because Most times, the money realized from the sale of the collateral pledged by the borrower many not be sufficient to offset the outstanding principal and accumulated interests. So be sure to detail in your business plan how you are going to make the revenue to pay the loan back or any collateral you have to back it up.

Also, be sure to explain why the loan is quintessential for your business. “Make sure there is a solid business plan as to what they are planning to do with their business and how the financing will support the mission for the company,

The following recommendation may be beneficial to small and medium corporations owners who are desirous of bank support :

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1. Don’t borrow more than 25% of your whole working capital from a bank. At such degrees of loan, it would be easier for you to repay on time.

2. Do not use bank’s loan to finance a speculative business which has a high probability of failure. For example,  Using bank loan to stock a product like palm oil, hoping to sell when the prices move up. What if the prices move down? or , if you buy a piece of machinery with a loan that was intended to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under.

3. Do not use bank loan to import perishable merchandise like fish and fruit juices or even drugs. Delayed cargo or mechanical failure should lead to the product spoilage and a big monetary loss. However, insurance plan can cover this hazard to a lifelike extent.

4. Do not use bank loan to finance, stock or import contraband no matter the assurances of the clearing agents. Once customs seize the goods, you are doomed.

5. Never use bank’s money to finance luxury items. That’s a stupid thing to do. If a bank finances your mortgage, ensure that all or part of the apartment is rented to yield income to help you service the loan.

When you have a misfortune of failing to repay your loan, don’t run away from your banker, engage them.

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Enlist a lawyer and accountant to help you in negotiating a foreclosure of a loan you can no longer repay. Get a discounted full and final settlement amount usually tenored for 90 days and sell your collateral yourself. When the bank sells, you may get a lower sales figure for so many reasons I will state another day. The buyer of your collateral shall pay into your account in the lending bank who will in turn release the title documents to the buyer.

When you want to sell the property pledged against a loan, never disclose to the buyer the real reason why you are selling to avoid wicked pricing. Ensure that you have already agreed on the selling price before you give out a copy of the title document for legal search.

Evidence that you borrowed and did all you could to pay down your loan in banks is a certificate of good character and a beautiful music to the ears of bankers. It matters a lot.


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