Every successful entrepreneur is great at one important skill.

They know how to use “leverage” to their advantage. They know how to use other people’s resources to support their business.

And that’s why banks exist.

Banks give you the unique opportunity to use “other people’s money” to grow and expand your business — in exchange for a fee (known as ‘interest’).

And this is exactly why wealthy people, multinational companies, and smart entrepreneurs love to do business with banks.

Banks will not take a share of ownership or equity in your business.

Banks will not ask for a seat on your company’s board of directors or get involved in how you make decisions in your business.

And unlike investors, as long as you keep your commitments, banks will typically not bother you to attend unnecessary meetings, make long presentations, or submit weekly or monthly reports on the performance of your company.

Still, despite all the above benefits of bank loans, many entrepreneurs still struggle to access loans for business.

This article contains 10 important tips and advice that could boost your chances of successfully getting a loan from your local bank to support your business.

1) Have a cash flow history

Banks love cash flow.

In fact, cash flow is one of the biggest factors that influence the decision of a bank to give out business loans.

That’s because loans can only be paid back with cash. Not promises.

And most often, it’s only a business that has enough cash coming in from customers (in a consistent fashion) that can pay back a loan without missing their payments or making excuses.

As a result, banks will want to see a history of cash flows and transactions that prove your business can actually pay back the loan, with interest.

But what if your business is a new startup or just doesn’t have a history of cash flows?

Take a look at #2.

2) Use spare assets as collateral

The money that banks give out as business loans come from ordinary people who have savings accounts and deposits in the bank.

And when those people walk into a bank, they expect to get their money. They don’t want stories or excuses.

Therefore, when banks give out business loans, they don’t like to take risks with the money.

And that’s why they ask for collateral or security.

A “collateral” or security is something of value you own (like a house, vehicle, stocks, etc.) that the bank can sell to recover the loan in the event that you cannot pay back the loan (plus interest).

A bank will typically ask for collateral, especially if your business doesn’t yet have a good history of cash flows, or if the bank perceives you as high risk.

I have seen clients use a personal home, property, car, boat, stocks, investment, and other spare assets as collateral for a business loan.

But remember, this can be risky. If you’re not sure about the business you’re getting into, you could lose the loan money and the bank could come after the property you used as collateral.

That’s why in our fundraising training and coaching program, you will learn how to assess the level of risk in a business before you seriously consider investing any money in it.

The program exposes you to the 7 Critical Risks you need to look at before you take out a loan for your business or think about using your personal assets as collateral.

3) Get a credible backer

But what if your business doesn’t have a history of cash flows and you don’t have any valuable assets to pledge as collateral to the bank?

This is where a credible backer comes in.

A credible backer is a person or business that can guarantee cash flow or collateral to the bank on your behalf.

One example is a purchase order or contract from a reputable company.

This was the exact strategy used by Anna Phosa, the founder of Dreamland Piggery & Abbatoir in South Africa, to raise a $1.9 million loan from ABSA Bank to expand her business.

Based on a major contract with Pick ‘n Pay, a major supermarket chain, to supply 100 slaughtered pigs a week, Anna was able to get the loan and expand into a 350-hectare farm property.

Your credible backer could be a major customer, a key supplier or distributor, or a strategic partner who can give your business the clout it needs to be attractive to banks and potential investors.

In our fundraising program, you will learn ways to find and leverage credible backers, and how to develop loan proposals and applications to banks in a way that addresses most of the critical risks that typically hold back banks from releasing funds to entrepreneurs.

4) Ask for a reasonable amount

A bank loan is not a lottery ticket. There is always a limit to the amount of money a bank can give you.

And for the banks, that limit is determined by your ability to pay back the loan and interest.

That limit is often determined by the cash flows from your business or the market value of the collateral you’ve pledged to the bank.

For example, let’s say you’re asking the bank for a $200,000 loan, and your business currently makes $10,000 in cash inflows every month.

The bank will want to know if you can reasonably pay back the monthly loan installments after taking care of other important business expenses like salaries, raw materials, marketing, rent, etc.

Banks will only give out loans that a business can reasonably pay back.

And guess what, you can’t make it up. The banks know how to find out your limits.

In our fundraising program, you will learn how to negotiate the right loan amounts based on the interest rate, loan tenor, payback strategy, and other important factors.

5) What type of business loans are you asking for?

All loans are not the same.

That’s why the type of loan you ask for will play a big role in the bank’s decision to give you that loan.

There are different types of business loans, but let’s keep things simple.

There are typically fixed-term loans, and there are lines of credit.

A term loan is usually a lump sum of cash that the bank gives to you to be paid back over a specified period of time (usually months, or years).

With term loans, you pay interest on the entire loan – it doesn’t matter if you only use part of the money or all of it.

A line of credit, also known as an overdraft, works like a credit card. Your business can borrow money up to a maximum limit.

With a line of credit, your business only pays interest on the portion of the money it borrowed.

Both types of business loans have their advantages and disadvantages. And the one to choose depends on the type of business and the needs of your business.

In our fundraising program, you will learn how to make the right decisions about financing your business so you can choose the type of loan that’s the best fit for you and your business.

6) Knock on the right door

Most times, your bank will not offer you a loan out of the blue. You have to ask for it.

But what’s the best way to ask for a loan?

Do you apply on their website, or send them an email, or call their telephone hotline, or just walk into the nearest branch and ask to see the bank manager?

Most banks have a process for giving business loans to customers.

And if you don’t know or follow that process, you’re very likely knocking on the wrong door.

Sometimes, a bank gets so big that some departments of the bank don’t even know what other departments or units are doing.

And sometimes, even the bank employee at the front desk may not have any clue about the bank’s range of loan products and services.

Also, it may be difficult to get through to the bank manager.

But there’s usually someone else who could help you find the right door to knock on.

That brings us to #7.

7) Put your account manager to work

Remember, banking is a business. And every business needs to serve its customers well and keep them happy.

That’s why most banks assign an account manager or relationship partner to ensure customers are satisfied with the bank’s services.

Also, the banking industry is very competitive. Banks have to compete against each other for customers and for market share.

That’s where your account manager comes in.

If you have been a good customer of the bank and your business has a good history of cash flows and transactions in your bank account, then you deserve to be considered for a loan.

Remember, if you have money in the bank, you can be sure the bank is giving out some or all of your money as business loans to other customers.

Therefore, if your current bank can’t support your business, then it may be time to find another bank that’s ready to support you.

Your account manager will likely feel the pinch if you close your account with the bank.

That’s why now is the time to use that negotiating leverage to your advantage.

8) Target the right business loans

To stay competitive, banks often offer specialised loan products that target specific types of businesses or industries.

Some banks specialise in loans to businesses in the manufacturing, retail, real estate, or agriculture industry.

Some banks specifically target small and mid-sized companies (SMEs), or large multinational corporations. In fact, there are now banks that target interesting niches like women-owned businesses.

Some banks provide specific loan products like equipment or vehicle purchase loans, merchandise loans, purchase order financing, etc.

I’m sure you get where this is going.

In summary, an effective strategy is to target the right bank or the right loan products that are the best fit for your business.

9) Improve your credit score

After you submit your request for business loans, some banks will do a background check on the owner(s) of the company.

They will try to find out if you are a creditworthy person who has a history of paying back what they borrow.

That’s where a good credit score comes in.

In the eyes of a bank, a good credit score reduces the risk of lending you money. It tells the bank they’re unlikely to regret the decision to give you a loan.

More and more banks now rely on big data and intelligent algorithms to determine the creditworthiness of customers who apply for business loans.

10) Arrange lease financing instead

Do you need a loan to purchase equipment and machines for your factory, or purchase vehicles to expand the fleet of your transport and logistics company?

Maybe you would be better off with a lease financing arrangement instead.

Here’s how it typically works:

Rather than ask the bank for a loan to buy the equipment, the bank buys the equipment and gives it to you under a finance lease, a hire-purchase arrangement, or a payment plan that allows you pay back the cost of the asset (with interest).

Unlike a loan, lease financing means the bank owns the asset until you fully pay up for it.

In our fundraising program, you will learn several interesting ways to structure fundraising deals in ways that significantly favour your business.

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