When an acquisition or refinance is turned down by lenders, it is too often because the borrower is not prepared.
- Ability to support the loan. You must have the ability to support the loan payments. This must come from your own pocket or your business. So you will need to show your income tax statements and accountant prepared corporate financial statements. If you have been hiding cash income, declare it now and take the tax hit.
- Credit score. Your credit score is important but a few blemishes will not kill a deal, just make it more expensive. If you have a good story about why your credit score is low, be open and frank. Lenders hate to be blindsided at the last minute by a sudden revelation that you have had credit problems.
- Interest rate. The banks have done a marvelous snow job on the public, convincing us that the interest rate is the sole criterion by which to choose a lender. This is wrong, because a low interest loan can easily become a paperwork nightmare for the borrower.
- Asset valuation. If you are buying a house, business or piece of equipment, you need a professional appraisal. Be ready with your cheque book to pay for these.
- A complete file. If you need to borrow money, have a complete file and be clear about what you are doing. More than once, I have asked a prospective borrower how much money he needs and the answer was “as much as I can borrow”. Those files went to Bin13.
- Use of funds. Document what you need the funds for and make sure you include all the legal and other fees. If you don’t, please refer to item 5 above.
- Personal Guarantees. If you will not offer a personal guarantee, think again. You may have to offer it for a short period but then escape it during a refinance. Lenders like people who stand behind their projects.
- Sweaty Palms. You need to be dispassionate about the transaction, and not be sweating it out in front of the bank manager. Few borrowers can be dispassionate when discussing their own personal financial affairs. Get a professional who can put together a deal in the language of the lender.