| Loan Financing Guide for Small Business Owners A guide to securing and repaying business loans |
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| How long does it really take to secure business loans? Myths and reality. |
After a number of years in commercial lending I have come to
realize that most business owners do not truly understand how long
it takes to secure business loans. As a result, they set unrealistic
expectations for themselves and their prospective lenders. This
leads to frustration, waste of time, delays in or inability to secure
financing, financing that is not in the best interest of their
businesses, loss of business opportunities, and ultimately financial
losses for their companies. For instance, if you do not know how
long it takes to secure a business loan and do not leave enough
time, you may not be able to close a business acquisition, purchase
a building or equipment, or fail to take advantage of some other
business opportunity. I have seen it happen too many times and
frequently business owners bear the responsibility. What’s worse,
some of my prospective borrowers were coming in with requests
for financing right when the money was needed. This shows lack of
proper planning, again to the detriment of their businesses.
I hope that this article will help you understand the timing necessary
to secure debt (loan) financing and give you the knowledge to plan
accordingly.
Myth #1: Instant loan approval.
Reality: Yes, some lenders, particularly small business lenders,
advertise instant loan approval. However, the timing of loan
approval differs among lending institutions, various lending
departments within those institutions, size and complexity of your
loan request, strength of your company’s and your personal
financial condition, and a number of other factors. In some cases
the speed of loan approval depends on backlog (pending
applications for loan financing) your prospective lender is
experiencing at that time, staffing levels, and time of the year. Be
smart. Read between the lines! Instant or some other quick
approval may come with a disclosure such as “generally instant” or
“approval in as little as 24 hours”.
So, the only way to resolve the mystery of “quick loan approval” is
by asking questions and asking them in advance. If you need the
money in a week or within some other short period of time, your
chances for timely approval have just dwindled. In this case, you
should be realistic about your other options and have a backup
plan. It is easy to blame lenders for untimely or late financing, but
perhaps you were a contributing factor. If you need information on
how to organize and manage your search for lenders, take a look
at Chapters 26 through 30 in my book titled Loan Financing
Guide for Small Business Owners.
Myth #2: Loan approval timing is all I need to account for in
search for loan financing.
Reality: The process of securing debt financing consists of several
steps:
As you see, securing financing consists of many more steps than
just getting your loan request approved. The process can be time
consuming, and it is another reason to have a plan to stay in control
throughout the endeavor. Of course, understanding the process
and having realistic expectations can help you sail toward getting
the right loan financing with as few obstacles as possible.
Myth #3: Obtaining loan approval is the lengthiest part in securing
a loan.
Reality: I think this is where many business owners go wrong.
Everything depends on the complexity of your financing needs and
your business’ financial situation. Loan approval process (let’s call
it loan review process, as approval is never guaranteed) does not
even begin until you submit all requested financial statements. Thus,
if you check back with your lender in a few days and find out that
he or she did not even begin reviewing your loan request because
you did not submit all requested financial statements and
information, you have nobody but yourself to blame. This is by far
the main reason for delays in the loan application process and loss
of time.
Another area in securing financing that can sometimes take a
significant amount of time is review, discussion, and negotiations of
legal documents. Loan documents commonly come standard, are
written in an all-encompassing matter, and are not always open to
negotiations. All-encompassing structure is a result of decades of
learning experience in working with business borrowers, including
unpleasant situations such as bankruptcies and law suits. Not all
lenders are willing and able to modify loan documentation, but it
does not hurt to ask. However, pick a few significant points that
are most important to you and focus on those areas. If you begin
to negotiate and disagree with every single sentence, your legal tab
will quickly make loan financing a very expensive endeavor. Pick
your battles wisely.
I have worked on financing requests that took weeks to finalize
because borrowers were not happy with how loan documents
were worded. This is when it is important to have a knowledgeable
and experienced attorney on your side, just as a lender will have its
own attorney. I recall working with a prospective borrower whose
legal counsel was in my opinion inexperienced in working with
lenders and dealing with loan documentation. As a result, legal
documentation “discussion” dragged on for almost 4 weeks
(instead of planned couple of days) and cost my prospective
customer three times of what he was planning on spending in legal
fees. How about a 24-hour loan approval now?
Myth #4: It is quick and easy to apply for and secure a business
loan because there are so many options in the market place.
Reality: Yes, there are lots of lending options in the market place,
but not all of them may be right for or in the best interest of your
company. The only way to make the right decision is by doing your
research as well as understanding strengths and weaknesses of
your company’s financial condition and your loan request. Do you
choose a commercial bank, financing company, specialty lender
focusing on your industry, or some other option? Which lender will
be able to offer quick turnaround, good service at a competitive
price, and best meet your company’s financial needs?
If you do not do your research, you may invest lots of time and
possibly money just to realize that the lenders you have been
working with so far do not meet your needs. Then you may need
to start all over again, which can cost you time and money. For
example, I remember speaking with a business owner who had
invested several days worth of time applying for loans with a
couple of lenders. Imagine her frustration when she realized later
that those lenders were not comfortable with lending money to
companies in her industry and were therefore unwilling to offer
competitive loan terms. If she did her homework and asked a few
questions, she would have saved herself days of precious time.
Remember this – no preparation will likely lead to wasted time and
money and will lower your chances for loan approval.
Conclusion
The biggest mistake you can make when obtaining loan financing is
thinking you can’t learn how to manage the entire process and that
you will not benefit from such information. The most successful
business owners I have worked with knew what lenders expected,
understood what was involved in securing loan financing, and
excelled at developing lasting relationships with lenders. This is not
the information you can get and digest right when you need loan
financing, because there is usually not enough time to worry about
it at that point. You should learn how to secure financing and
handle lenders in advance. My industry does not change much and
the foundation of knowledge that you will build early will serve you
throughout your career of a business owner. Remember: ask
questions, know where you and your business stand financially,
understand your financing options, and find lenders you like and
foster those relationships.
realize that most business owners do not truly understand how long
it takes to secure business loans. As a result, they set unrealistic
expectations for themselves and their prospective lenders. This
leads to frustration, waste of time, delays in or inability to secure
financing, financing that is not in the best interest of their
businesses, loss of business opportunities, and ultimately financial
losses for their companies. For instance, if you do not know how
long it takes to secure a business loan and do not leave enough
time, you may not be able to close a business acquisition, purchase
a building or equipment, or fail to take advantage of some other
business opportunity. I have seen it happen too many times and
frequently business owners bear the responsibility. What’s worse,
some of my prospective borrowers were coming in with requests
for financing right when the money was needed. This shows lack of
proper planning, again to the detriment of their businesses.
I hope that this article will help you understand the timing necessary
to secure debt (loan) financing and give you the knowledge to plan
accordingly.
Myth #1: Instant loan approval.
Reality: Yes, some lenders, particularly small business lenders,
advertise instant loan approval. However, the timing of loan
approval differs among lending institutions, various lending
departments within those institutions, size and complexity of your
loan request, strength of your company’s and your personal
financial condition, and a number of other factors. In some cases
the speed of loan approval depends on backlog (pending
applications for loan financing) your prospective lender is
experiencing at that time, staffing levels, and time of the year. Be
smart. Read between the lines! Instant or some other quick
approval may come with a disclosure such as “generally instant” or
“approval in as little as 24 hours”.
So, the only way to resolve the mystery of “quick loan approval” is
by asking questions and asking them in advance. If you need the
money in a week or within some other short period of time, your
chances for timely approval have just dwindled. In this case, you
should be realistic about your other options and have a backup
plan. It is easy to blame lenders for untimely or late financing, but
perhaps you were a contributing factor. If you need information on
how to organize and manage your search for lenders, take a look
at Chapters 26 through 30 in my book titled Loan Financing
Guide for Small Business Owners.
Myth #2: Loan approval timing is all I need to account for in
search for loan financing.
Reality: The process of securing debt financing consists of several
steps:
- Find potential lenders you are interested in working with;
- Gather and submit the necessary business and personal
financial information; - Apply for a loan;
- Allow sufficient time for lender(s) to review your loan
request; - Receive approvals and negotiate loan terms (e.g. pricing,
fees, or covenants). Review and adjust your game plan, if
your loan application(s) is rejected; - Review and possibly negotiate loan documents;
- Sign loan document; and
- Get the money. Finally!
As you see, securing financing consists of many more steps than
just getting your loan request approved. The process can be time
consuming, and it is another reason to have a plan to stay in control
throughout the endeavor. Of course, understanding the process
and having realistic expectations can help you sail toward getting
the right loan financing with as few obstacles as possible.
Myth #3: Obtaining loan approval is the lengthiest part in securing
a loan.
Reality: I think this is where many business owners go wrong.
Everything depends on the complexity of your financing needs and
your business’ financial situation. Loan approval process (let’s call
it loan review process, as approval is never guaranteed) does not
even begin until you submit all requested financial statements. Thus,
if you check back with your lender in a few days and find out that
he or she did not even begin reviewing your loan request because
you did not submit all requested financial statements and
information, you have nobody but yourself to blame. This is by far
the main reason for delays in the loan application process and loss
of time.
Another area in securing financing that can sometimes take a
significant amount of time is review, discussion, and negotiations of
legal documents. Loan documents commonly come standard, are
written in an all-encompassing matter, and are not always open to
negotiations. All-encompassing structure is a result of decades of
learning experience in working with business borrowers, including
unpleasant situations such as bankruptcies and law suits. Not all
lenders are willing and able to modify loan documentation, but it
does not hurt to ask. However, pick a few significant points that
are most important to you and focus on those areas. If you begin
to negotiate and disagree with every single sentence, your legal tab
will quickly make loan financing a very expensive endeavor. Pick
your battles wisely.
I have worked on financing requests that took weeks to finalize
because borrowers were not happy with how loan documents
were worded. This is when it is important to have a knowledgeable
and experienced attorney on your side, just as a lender will have its
own attorney. I recall working with a prospective borrower whose
legal counsel was in my opinion inexperienced in working with
lenders and dealing with loan documentation. As a result, legal
documentation “discussion” dragged on for almost 4 weeks
(instead of planned couple of days) and cost my prospective
customer three times of what he was planning on spending in legal
fees. How about a 24-hour loan approval now?
Myth #4: It is quick and easy to apply for and secure a business
loan because there are so many options in the market place.
Reality: Yes, there are lots of lending options in the market place,
but not all of them may be right for or in the best interest of your
company. The only way to make the right decision is by doing your
research as well as understanding strengths and weaknesses of
your company’s financial condition and your loan request. Do you
choose a commercial bank, financing company, specialty lender
focusing on your industry, or some other option? Which lender will
be able to offer quick turnaround, good service at a competitive
price, and best meet your company’s financial needs?
If you do not do your research, you may invest lots of time and
possibly money just to realize that the lenders you have been
working with so far do not meet your needs. Then you may need
to start all over again, which can cost you time and money. For
example, I remember speaking with a business owner who had
invested several days worth of time applying for loans with a
couple of lenders. Imagine her frustration when she realized later
that those lenders were not comfortable with lending money to
companies in her industry and were therefore unwilling to offer
competitive loan terms. If she did her homework and asked a few
questions, she would have saved herself days of precious time.
Remember this – no preparation will likely lead to wasted time and
money and will lower your chances for loan approval.
Conclusion
The biggest mistake you can make when obtaining loan financing is
thinking you can’t learn how to manage the entire process and that
you will not benefit from such information. The most successful
business owners I have worked with knew what lenders expected,
understood what was involved in securing loan financing, and
excelled at developing lasting relationships with lenders. This is not
the information you can get and digest right when you need loan
financing, because there is usually not enough time to worry about
it at that point. You should learn how to secure financing and
handle lenders in advance. My industry does not change much and
the foundation of knowledge that you will build early will serve you
throughout your career of a business owner. Remember: ask
questions, know where you and your business stand financially,
understand your financing options, and find lenders you like and
foster those relationships.
| Copyright © 2005-2009. D. Neil Berdiev. All rights reserved. |