Raw Deal
Evaluating what went wrong after being turned down for a bank loan
By George M. Dawson
Q: Our sunglasses shop was turned down for an expansion
loan. We're angry and don't understand what happened,
especially since we have excellent credit.
A: Since your credit record is no problem, take a dual
approach. One, get some fresh eyes on the problem. Contact your
Small Business Development Center (http://www.sba.gov) and review your
package with a loan counselor. And two, examine what went wrong.
Stay calm. Don't apply elsewhere. Multiple applications can
poison your credit report with multiple turndowns. Instead, call
the loan officer and request a meeting. Reassure him or her that
you respect the decision, do not expect it to change, and
appreciate the time spent on your request. Say nothing that could
be interpreted as anger or a threat-even by the most paranoid
people.
State that you value the banker's ideas for changes your
company should make to qualify for bank credit. Don't let the
turndown go unexplained. You must understand why. The banker might
resist; in that case, suggest that it can be done over the
phone.
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Whatever advice you get, don't argue and don't object.
Only ask clarifying questions. Uncover the weaknesses the bank saw
in either your presentation or in your company. You want this
person who said no to tell you what it takes to get a yes.
Don't indicate that you might apply again somewhere else.
There's nothing shady about this. Lending is not a science.
Maybe all you need is a lender who understands your industry.
Perhaps you need another type of lender, like a commercial finance
company.
Turndowns often prompt a reworking of your business plan.
Perhaps you need to manage cash flow and current assets more
efficiently or improve profitability before expanding. Banks are
not business plan consultants. Maybe all the bank's objections
are misunderstandings. Great! Just do your explaining at another
bank. This discussion will test your patience but improve your
chances of getting a loan. Staying angry and submitting the same
losing proposal again is a blind alley.
George M. Dawson (gdawson@txdirect.com ) is a
small-business consultant and author of Borrowing to Build Your
Business: Getting Your Banker to Say "Yes" (Upstart
Publishing, $16.95, 800-235-8866). Send him your financing
questions at bsumag@entrepreneur.com.