We recently caught up with DJ Jerry Bazata, one of The Knot Ambassadors, and got to talking about his day job. While he's a highly requested event DJ (The Knot Best of Weddings winner 3 years running), he's also a successful commercial banker by day. He offered up some great advice for any small business considering expanding or investing in improvements for their company and plans to borrow money to finance their vision. Check out his advice below:
"If you decide to borrow money, you’d meet with someone like me. For the past 30 years, I have been that local banker providing working capital for hundreds of businesses with loans ranging from $10,000 to $10,000,0000+.
If you’re seeking a loan for your small business right now, you’re in luck—interest rates continue to be at historic lows so the cost of getting a loan and the cost of financing remains favorable. Still, lending institutions do refuse loan requests for various reasons. So whether you are attempting to borrow from a bank, credit union or obtain a business credit card here are the major pitfalls to avoid:
Top 10 Reasons Why Loan Applications Are Denied
- Incomplete application: Leaving information blank or incomplete only hurts your chances for approval. Fill in everything.
- Illegible writing: If you can’t read your own handwriting, do not expect the loan officer to. If possible, download a free PDF writer and type your answers directly in the document.
- Inaccurate statements: Do not include false or misleading information on the application. The lender may ask for additional documentation to support each statement.
- Incomplete financial disclosure: The application will ask for account balances and a listing of debts. Be prepared to provide this information accurately.
- Loan purpose: You would be shocked at the number of applicants who leave this section blank. The belief that just because you have good credit, the bank will loan you the money is not true. In fact, a financial institution can only lend you money for a legitimate reason. “Lady Luck is with me at the poker game” is not one.
- Loan amount: Using the phrase, “As much as I can get” will most certainly get you nothing but a decline. To any loan officer, this is a sign of desperation and will suggest that you’ve been applying everywhere and this application is now your last attempt before you see “Louie the Loan Shark.” Be realistic in your expectation and only apply for the amount of money that will help you meet your financial obligations.
- Unsigned and undated application: Need I elaborate any further? If you do not sign the application and date it, a credit report cannot be obtained and you will be declined. This actually happens more than you'd think.
- Lack of supporting financial information: In some cases you will be asked to provide third-party financial information such as tax returns, bank statements or credit statements. Be sure this information is current and accurate and is properly stated on your loan application.
- Thinking that a co-signer will ensure approval: If you cannot afford to pay the debt and you have bad credit, a co-signer will not improve your chances of getting approved. A co-signer is usually only accepted because you have very limited credit experience.
- Inability to discuss your financial information: An effective loan officer will review your application face-to-face — especially with a business loan. Be prepared to talk about your financial performance both past and present. Use specific examples when talking about growth potential or specific historical references (e.g., Sales have increased 10% YOY with $100,000 in revenue in 2015.) The more a lender has to hunt for your information, the less likely you are to be approved.
Applying for a loan should not be a scary process. Take the time to review everything carefully. Make a list of supporting documents that you are asked to provide, and then make sure that they are organized in the correct order. Prior to final submission, review the package with a lender to ensure that everything is correct. And lastly, be prepared to discuss all of the information contained in your application." - Jerry Bazata