Whether you’re spending or saving money, banks are using a lot of smart tips to make the most of your money. Often, the banks’ best interests and the debt of SMEs do not coincide. When such a circumstance happens, it is essential for the SME to recognize it. Well-managed companies will quickly become familiar with cases where banks overburden or charge a commission that is not part of the initial loan agreement.
Lenders are known to take into account your income, credit score, and financial stability when assessing your eligibility for a loan. However, behind these apparent considerations, there are several business tricks that creditors know, and therefore you should know them also. Get a better loan by knowing some of these secrets that the lending world won’t tell you while taking a loan.
There are some standard procedures that a bank does not usually tell its customers:
- No bank will deny that it’s the best
If a company contacts more than one bank to obtain commercial financing, it is very likely that the interest rate and terms offered will be very different. Although a particular bank can give your business a well-structured loan with a reasonable interest rate, the conditions of a competing bank can put a much higher financial burden on it. As a potential borrower, remember that under no circumstances will a higher interest rate bank send you to another bank with better terms. It is essential to compare and contrast the conditions of different banks before making the final decision.
- You could pay more than your real savings
When your bank loan application is approved, you will receive an approval document containing the primary conditions. The document will indicate the amount of the loan sanctioned the interest rate and other different conditions. But before the credit amount is paid, you will need to sign a much more detailed legal document. Most people do not read this document. But it contains several clauses that can overload you later. For example, if you have funds to pay your loan in advance, you can do it to save more interest. When you do this, the savings you attempt to make may disappear because your account will be charged with an advance payment amount.
You will find that you have accepted and signed without reading the loan document when the loan limit has been approved. Another way you can lose when you take out a bank loan is that it may be mandatory to raise funds for two years when your need is only one year. In such a situation, you would have unnecessarily paid interest for one extra year.
- You may be rejected even if you are making good profits and well established
If you need commercial financing and are getting closer to a bank, the usual procedure is first to ask you to submit a series of documents for review and approval. These include last year’s financial statements, copies of the tax assessment notice and financial statements for the previous six months. If you have a well-established, profit making company that has been in operation for several years and can offer strong guarantees, it is reasonable to expect your loan application to be approved. Unfortunately, many companies that have perfect results are rejected by these lending firms.
The reason usually falls into two categories. First, the sector in which it operates cannot be included in the list approved by the bank. This info won’t be made available in any of the documents made available to clients. Even when your loan application is rejected by the bank, it will not tell you that it is because it does not finance the debts of a particular sector. If the bank finances companies operating in its sector, it can still reject the loan proposal since it has reached its limit on financing that it wants to set in a particular industry. And here they will not reveal the real reason they refuse to lend you money. A company that is sourcing for money to lend must take into account that the lending world does not generally have the power to sanction some loans.
- It is not possible to get the loan on time
A bank will report that a commercial loan can be sanctioned in about two weeks. This is the time it will need to check and review the submitted documents. Under normal circumstances, a period of fifteen days is reasonable to approve a loan. What the bank won’t tell you is that within 14 days they may request additional information or documents. Once this new data is provided, the bank will need more time for the review.
You can be sure that the loan approval process will be long and costly. If you need an immediate or punctual loan like
- Low-interest rates are not always reasonable.
There may be hidden costs/costs incurred for you. In some countries, banks generally pay interest rates ranging from 5 to 7% to companies. This sounds interesting and corresponds to a fair interest rate. A reasonable entrepreneur should not object to the payment of these fees for a loan. But it is important to note that this rate excludes 5-6% added to the Preferential Loan Rate (PLR) account. As a result, the effective rate for the borrowed amount is about 10% or a little more. When a business asks for funds, a bank loan can often be the most appropriate option. But it depends on the borrower to find the hidden terms that could be the cause of a bad surprise at a later date.
If an SME/individual signs loan documents without understanding all the implications, this is just an error. Some banks offer low-interest rates as well, but in this case, it is even more important to confirm that there are no hidden costs in the fine print of the loan agreement.