First of all, here is a very important truth: Borrowing Money Is Not A Cure All/
Simply borrowing more money to support your business operations may seem like a solution to your money problems. However, borrowing more money could make the problem worse.

Borrowing money seems like the right thing to do for two reasons: it relieves the immediate pressure and it allows things to continue as normal. We all wish things could remain the same, but maybe it is time for a change. Before borrowing money or bringing in investors, stop and ask yourself this question:

What is the real business problem or issue that needs to be resolved? Do I really need to borrow money? Is there some other problem that needs to be resolved?

Answering this question will lead you to finding the root cause of your need for cash. Borrowing money to support your operation based upon a flawed business model is only delaying the inevitable. There can only be one of three results:

Your bank will foreclose when they feel your ability to repay the loan is at risk.
You feel increased pressure to repay the debt or keep investors happy.

When investors become impatient with your lack of performance and feel you are unable to turn things around, you will no longer be able to raise additional funds to support your operations. It is only a matter time before you have to close the doors.

If your business model lacks an adequate level of customer adoption — that is the problem you have to resolve. If you cannot correct this fundamental problem, no amount of money will be enough. You are better off closing doors sooner than later.

Understand Your Banker’s and Investors’ Mindset!

At times it might seem like your only job is to keep investors and the bank happy. While it is your responsibility to communicate with them and answer their questions, do not let them run your business. Remember:

They have to to make a profit. They invested money in your company believing that it would be profitable.

They do not like risk. All banks and financial institutions are risk averse. They will not risk their capital. The moment they feel their money is at risk they will begin to evaluate their options.

Banks/investors are keeping an eye on your financial position. Specifically, an improvement in your financial position.

You must understand and be able to interpret what your financial statements are showing. If you do not know how to read them, get a CPA or accountant to interpret them for you. Pay particular attention to your financial ratios. Bankers and investors know what they mean — so should you.

Keep Your Eye On the Ball!

Be careful that you do not allow your focus to stray from the core business principles of:

• innovation: looking for ways to deliver better, faster and cheaper;
• management: trying to strike a balance between adequate controls and employee independence;
• customer service: keeping customers happy is the best insurance there is;
• sales and marketing: making sure your business has the ability to manufacture customers.
Beware: A Survival Mentality

I have witnessed this more times than I care to remember. The debt becomes the focus rather than serving customers. The business owner becomes obsessed with keeping the business afloat and repaying the debt. She starts to make inappropriate decisions and misguided attempts to reduce costs that result in lost customers and market share.

The most basic business concepts dictate you must first understand your customers needs, wants, emotions and perceptions before you can build a business model to meet those needs.

Five Problem Solving Questions

Keep asking yourself these questions over and over:

• What is the real problem or issue?
• Do I really need to borrow investment capital or is there some other problem that needs to be resolved?
• What am I not seeing?
• Is there a better solution?
• Who can help me?
Be Daring Enough To Invest Your Time In Writing A Business Plan!

Start with the end first. What is the end result a prospective customer wants as a result of doing business with your company? What do they want to experience? What is the customer really buying? How can you meet those needs? Be willing to look at your business from a fresh perspective. Be prepared to reverse engineer every aspect of your business from beginning to end.

Probably the most valuable thing you can do at this point is to take the time to write a business plan. I know what you are thinking:

“I do not have the time to write a business plan. I am too busy trying to save my business!”

I would argue that you have no choice. If you are having trouble getting banks or investors to give you money, maybe it is time to regroup and take the time to write a business plan? The process itself will force you to examine every assumption and principle behind your business.

Small business loans can be used for a variety of purposes. For example, a business loan can help you buy a business, start a new business, and expand your business. You will deal directly with the banks loan officers but make no mistake major small business loans are reviewed by loan committees. Loan officers are typically not part of the loan committees.

Understand the Role of Loan Officers, Loan Committees & You

Improving the odds of getting a business loan at the terms you want starts with understanding how a business loan is processed and approved. Understanding your role and that of your loan officer and loan committee will help you through the approval process. It is a team game, and as they say, there is no I in TEAM.

Preparing to make a Small Business Loan Application

Remember, from a banker’s perspective past financial performance, including loan repayment history is very predictive of future financial performance. Before approving your loan request the loan officer’s job is to document this information referred to as the “due diligence” process. The loan officer will then calculate the critical financial performance ratios for the time period your financing or business plan covers. Then they compare your ratios to that of similar companies in your industry.

I highly recommend that before you start to talk to your commercial loan officer or apply for a small business loan do some preparation:

Bookkeeping: bring your bookkeeping up-to-date.
Financial Statements: review your financial statements with your accountant. Ask him/her to explain the financial ratios from your financial statements and the implications borrowing money will have on the financial health of your business.
Business Plan: write a business plan that includes full proforma financial projections.

After the Loan Application

After your application has been submitted, your loan officer begins building a business case for your loan request. This will contain information about your business and financial condition. It will also contain information about:

• the ownership of your business
• banking activity.

• previous borrowing experience.

• information from third-party credit reporting agencies.

• It may also contain anecdotal information from your customers, competitors or suppliers, if they happen to have a relationship with the same commercial finance organization.

Unseen Decision Makers

Most larger small business loan decisions are made by people who remain unseen by the borrower. Commercial loan officers are provided with authority to approve loans up to a certain level. Some can approve small loans of 50,000, 100,000; however, most loans over 250,000 are normally approved by a committee. Some loans over 1 million may require the approval of the board of directors.

The Loan Committee

Loan committees can have a wide range of authority. Most have little or no authority for granting loans; however, the function of those committees are to weed out loan requests before the requests are seen by senior management. Others have loan committees that have authority to grant small business loans up to the legal limit of the bank.

Most lending institutions have a relatively formal committee and decision making process for processing commercial loans. Depending on the type of financial institution, your loan may be required to be submitted to a loan committee for approval.

Other banks and lending organizations provide a fairly wide scope of authority for loan officers to approve or disapprove most of the loans they handle. However, in those types of institutions the committee’s review the loans after they’ve been made.

Depending on the size of the bank and structure, the annual report may tell which directors serve on which loan committees. You may also ask your loan officer for the names and identities of the committee members that sit on the loan committee that will be processing your loan request.

The Loan Officer’s Role

Your loan officer knows you and your business the best. He/she will also have a good feel for:

• What type of loan may or may not be approved.

• The types of loans

• The terms under which loans can be granted.

Some loan officers are more like advocates who aggressively package, defend and represent your loan request to the committee. Pay attention to any feedback and suggestions your loan officer provides regarding structure, information, collateral and guarantees that will be required. Remember, your loan officer knows the rules and the organization’s policies and procedures.

Plan Ahead - Write A Business Plan

Do not make a last-minute request for financing. Waiting until the last minute to prepare a business plan or request for financing can hurt your chances for approval, especially if you don’t have all the right information needed to make a decision. You need to allow the bank or lending institution plenty of time to go through its own procedures. There is paper work, analysis of your financial statements, credit checks, etc.

It’s important to have good financial management and control of your business. One of the ways you can show this is by taking the time to make a proper presentation by writing a business plan. It is most common to present your loan request with a business plan detailing your vision, situation and finance needs. In rare cases you may be able to present an executive summary with copies of your last three years financial statements - this happens very rarely, depending on the loan officers experience and bank policy.

Work With The System

Many entrepreneurs and business people have the perception that banks and commercial lenders do not like to lend money to a small business. Nothing could be further from the truth. They are in business to make loans — profitable loans.

Don’t fight them, think of them as partners. Talk to your loan officer to learn as much as you can about the approval process. Talk to other entrepreneurs and small business owners who may have dealt with the organization previously. They may have insights about how the organization works and functions.

Think of your relationship with the loan officer this way:

• Commercial lender: the lending institution is really an information gathering system. You have to provide assurance to the bank or lending institution that you have the capacity to repay the loan as planned.

• Borrower: think of your role as the information provider. Provide them with quality information. It will help them make a decision about your loan request and help you get the money want, at the terms you want.

Eliminate the tug-of-war and work closely with your loan officer — you will be pleased with the results. Make sure you know how to write a business plan.

The use of computers was introduced immediately after its launch by loan providers to ease their operations. Internet technology that resulted in the emergence of the online loans was introduced later. Necessity is the mother of invention. The adage aptly holds in case of online loans. Borrowers always suggested a method wherein there participation in the loans process is minimised. Lenders too needed an online loan to lessen their own workload.

An online loan came to benefit both the borrower as well as the loan provider. The ease with which online loans resulted into will be best illustrated when compared with the scenario that prevailed before its inception. A borrower was required to be present at the loan provider’s office for all the documentation. The situation became more troublesome when the period of operation of the loan provider matched the office timings of the individual. This excludes the plight of common borrowers who had to visit several lenders to check their loan offering. There was no other manner in which the borrower would have conducted the search in those days. Most borrowers who could not have borne the inconveniences of the process unwillingly accepted the offers that came to them, with full knowledge that they could have received better deals.

The benefit to the loan provider accrues in terms of the decrease that online loans have brought about in the paperwork. Details of each borrower needed to be documented. This would often be too time-consuming. Besides, there was unnecessary wastage of stationery and required the employment of personnel to undertake the job. An online loan saves for the borrowers on all these counts. Details of the borrower are received along with the application form. Duplication of work is made redundant and thus saves time as well as cost incurred by the loan provider. If the cost incurred in arranging an online loan is low for the loan provider, then it will willingly offer the loan at a low cost.

Online loans have become very popular now. People still hesitate in dealing with a virtual loan provider. There are basically two aspects to this hesitation. Firstly, there is the issue of reliability. People still need a personal bonding with the loan provider before acceding to the loan agreement. To make the process of awarding online loans more personal, some loan providers allow easy access to its representatives. Borrowers can easily consult the experts for getting justification on important issues related to the online loan.

The other issue that may affect the borrower’s decision to get an online loan is of safety. The online scams that are regularly in news often are behind the vacillating decision. However, most loan providers make more than sufficient endeavour to ensure that the safety of the borrowers’ information is upheld. The details of the borrowers are stored in a secured server to prevent unauthorised access. The latest encryption technology is used to ensure that borrowers get the maximum security of their data. Borrowers are also wary of the marketing companies that are forwarded their details for undertaking their marketing campaigns. This is expressly prohibited under Data Protection Act of 1998. Relevant bodies have been set up where a borrower can complain about such misuse of the personal information.

The delay in approval that most borrowers complained of earlier can be done away with an online loan. The search for matching loan offers starts immediately after the request for online loan is received. When processes are conducted online, they may be conducted simultaneously to lessen the time involved. A faster approval means a faster sanction of the loan amount to be employed instantly to the purpose.