Strategies for Guiding Your Clients Through the Loan Process
Applying for a small business loan is anything but fun. Business owners start the process with some pretty miserable statistics in the back of their mind … 82% of small business loan applications get denied by the bank, while 14 million small businesses don’t get the funding they need each year! Not to mention, research from the Federal Reserve shows that small business borrowers spend 25 hours searching for loans and preparing paperwork. The most valuable thing to any small business owner is their time. The idea of spending so much time on something they have a small chance of succeeding in is incredibly unnerving.
Helping clients with their small business loan application is an opportunity many accounting professionals are missing out on. With access to capital being one of the greatest challenges a small business owner will ever face, and in this age where accounting practices must provide more value-added services in order to grow, it makes perfect sense.
Interested? If so, here are 3 ways you can help your clients through the small business loan application:
1. Introduce Them to All Their Loan Options. Obviously, seeing statistics that reveal that over 75% of small business borrowers get told “no” from the banks makes you reconsider if it’s even worth applying there. Banks are still providing the lowest cost of capital, so if your client has a stellar credit score, booming revenues and profits, along with a spotless financial record, then, yes, they should probably start at the bank.
However, if you know your client has some financial weaknesses, or perhaps the bank has already denied them, an important role you can play in the process is helping your client understand their options outside of the bank. With bank lending on the decline, online or “alternative,” lenders have emerged to help fill the void left by the banks.
But, the online lending industry can be a bit intimidating. Where does a business owner start? Which lenders are reputable? Who offers the best rates? This is where you come in. Get to know the online lending space. For example, did you know businesses can apply for SBA Loans online?
Research the different products that can be found online, especially those that are more unique in form, such as short-term loans, which have daily payments. Then, research various lenders and read their reviews, identifying those that have superior customer service and lower rates. This way, when a bank isn’t an option for your client, you’ll know exactly where they should start their loan application.
2. Help Prepare the Application. It may take small business owners 25 hours to get through their loan applications, but involving their accountant can drastically reduce their time. Not only do you have most of their financial information at arms length, but you also most likely have many of the documents lenders need already prepared, and if not, you’re able to prepare them much more quickly than your clients can. Offering to help prepare your clients’ loan application offers them insane time-saving, as well as helps them submit a much more organized application. It’s a win-win for everyone.
3. Explain Their Loan Offers in Detail. As you’re advising your client through the loan process, you need to make sure they understand the value of applying to a few different lenders. This increases their chances of getting approved, and if they are approved by all or some of the lenders they apply to, they will have a few offers to compare.
If your client receives multiple offers, make sure you help them calculate the true cost of the loan with APR. This allows them to compare various loan products on an apples-to-apples basis, as APR accounts for the terms, interest and any additional fees. At first glance, one offer may seem best because the interest is lower, but if this lender charges a 3% origination fee, another lender whose interest rate is only 1% higher but has no fees may be the better option.
You can help your clients identify these hidden costs, and other “need-to-knows,” such as potential pre-payment penalties. Together, you and your client can also make sure they can afford to take on the loan by looking at their debt-service coverage ratio and their amortization schedule. You’re consulting them through offers and helping make sure they make the best decision for their business.
Every small business needs working capital to succeed. When your client is at a point where an influx of capital could change the course of their business for the better, it is important that you step in to make sure the process of securing this capital is as easy and successful as possible. Never miss out on the opportunity to help your clients grow their business!