Even experienced entrepreneurs often do not know how to avoid making credit application errors. Therefore, to increase the chances of success, the following mistakes should be avoided.
1. Make a loan application on time
Time pressure should be avoided when making a loan application. In this way, borrowers never succeed in getting the best deal.
In addition, a postponement of the necessary step does not make a good impression on the lender.
2. Credit requirements unknown or too low
The credit requirement is the capital requirement less own use. Especially with new investments, the loan amount can be determined relatively well. However, a certain safety buffer should always be scheduled.
Above all, borrowers should avoid giving the bank a lower amount for fear that they will not approve the actual loan requirement. Every reputable bank checks whether the borrower can actually make the desired loan amount investment. A need that is set too low will therefore in the worst case lead to mistrust on the part of the lender and will considerably reduce the chances for the grant. Even if the bank does not reveal the erroneous bill, a loan that does not meet actual needs is usually worthless to the borrower. A later increase is difficult to achieve.
3. Debt ceiling is ignored
The debt cap is the second important measure that helps borrowers calculate their loan amount. Under no circumstances should further loans be raised above this limit.
The calculation is relatively straightforward: The first step is to determine the amount of the net cash flow. He has to be big enough to settle the interest and repayment of all loans without any problems and equals the maximum annual amount that can be used for credit. The annual rate must therefore by no means exceed the net cash flow. It is better to leave a financial leeway to be liquid in times of need and pay off the debts without major problems.
4. Conceal problems
Even though borrowers are rarely comfortable with spreading the financial difficulties to the lender, honesty is one of the most important qualities in order to be recognized by the bank as a serious business partner and to actually be able to make good use of a loan.
Anyone who glosses over his finances can seriously disturb the relationship of trust with the bank and thus, in some circumstances, gamble away the opportunity to obtain a loan. In addition, it is punishable to leave the bank in doubt about the actual financial situation. The bank can even terminate the loan in serious cases even without notice. But even then, borrowers have to expect a change in credit conditions if there is less collateral than originally stated. In addition, financial difficulties can arise in this way, which the borrower can no longer cope with. Honesty helps both parties find a meaningful loan offer.
5. Unprepared appear in the credit conversation
- Should all important documents be up to date and in an orderly manner.
- Should all the important terms and previously negotiated framework conditions be clear.
- Should also comparative offers are available, in order to be able to have a good position negotiations and be able to estimate the offer correctly.
Good preparation not only exudes competence, but also puts the borrower in a better negotiating position. In addition, the processing time of the bank is shortened considerably in this way. To be prepared enough:
6. Avoid unnecessary expenses
The best chances for a loan are those who are economically responsible. This does not only apply to entrepreneurs who should avoid having to raise more money than intended for private purposes. Individuals also increase their chances of getting a loan if they restrain their consumption over a longer period of time. In this way, the equity increases, the financial leeway increases and the bank gets the impression that the borrower can handle money and so is a trusted customer.
7. Give the bank too many securities
Client advisors want to protect the interests of their employer and therefore usually make special efforts to conclude loans with the least possible risk. In individual cases, this can lead to the extent that the borrower has to provide unnecessarily many or valuable collateral. Future debtors would do well not to accept the first offer that the client advisor makes to them. Often, a good negotiation can significantly reduce the number or size of collateral. With good credit, it is even possible to demand a loan without collateral. In any case, a borrower should always have free collateral.
This is important to not only depend on a bank. Anyone who has already surrendered all their free assets to a single bank faces considerable difficulties if they need another loan and the principal bank does not want to grant it. For other lenders, the debtor then also has no chance to get a loan. The only option would then be to completely change the credit institution with all the loans and collateral, which, however, merely postpones the dependency and makes the problem relevant again at a later date. Therefore, borrowers should work with more than one bank from the outset, even if the walk to the well-known client advisor with good experience is very appealing.
However, it is quite possible that credit institutions will release the collateral if their value significantly exceeds the amount of the loan. For this, however, an application is possible, which happens in the best case in good economic times and not when a loan is necessary again.
8. Do not check the fine print
Those who do not read the agreements and the bank’s general terms and conditions carefully enough run the risk of violating the conditions. Above all, the obligation to provide information, contained conditions or incorrect use or overdraft of the loan accounts are common mistakes that can damage the trust relationship of the bank and in serious cases can even lead to the termination of the loan.
Special attention should also be paid to the flexibility of repayment. If possible, special repayments should be possible as well as a later maturity extension through lower monthly installments.