What NOT to do When Applying for a Loan

In our field of loaning to small and medium-sized businesses, we receive many requests but find few qualified applicants.  For many entrepreneurs, the need for capital increases as their underlying goal shifts from prosperity to mere survival.  What can entrepreneurs do to maximize opportunities and increase their chances of accessing available resources?  This question can best be answered by looking at what should NOT be done by potential bank loan applicants.

DO NOT ignore your long-term strategy.  The Romanian entrepreneurs' inadvisable habit of “adjusting” income and expenses to decrease tax liability is highly detrimental when applying for a loan.  Financial statements produced in this manner are a short-run fix and portray an image of a company with little or no profitability in the long-run.  Unfortunately, many entrepreneurs find out the hard way this band-aid ignores the underlying problems in the business and subsequently makes them ineligible for future financing.

DO NOT forget to pay your taxes. A  bad history of tax payments as reflected in the financial statements can be a huge impediment to loan approval, especially when coupled with positive cash flows.

DO NOT fill in the loan application form superficially.  Many careless mistakes applicants make while filling out loan applications are avoidable, can unnecessarily prolong the process, and potentially be a reason for application rejection.  Paperwork is tedious and universally disliked, but patience must be exercised when gathering necessary documents, whether it's financial statements, ID papers, or property documents.  The manner in which the application is submitted is often indicative of how the business is run.

DO NOT take shots in the dark.  Generally speaking, applying for “the maximum amount possible” of “whatever is available” conveys neither sufficient planning nor loan destination transparency to the loan officer.  If you don't know what you want, odds are you won't get it.

Living from one loan to another is NOT a solution.  You will eventually overextend yourself.  Many entrepreneurs take out personal loans to finance their businesses with the intent of repaying these loans with the assumed profits.  The temptation of omitting these personal loans from the loan application is often hard to overcome, but all loans must be disclosed.  This lack of honesty on the part of the applicant outweighs any solid profits of the business.