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How To Get A Great Credit Rating With Your Bank.

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Published: 09Jul2006
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Looking To The Future. If you are in business there is a good chance that sometime in the near future you will need to approach your bank for a loan. You may want to expand or branch out into an additional line. You may have the opportunity to take on a major project that requires up front funding. Can you be sure that your bank manager will look kindly upon your request?

Bank managers are people, just like you and I. They have a job to do and if you take the time to understand what makes them tick, you are half way there. The banks make their profits by lending money that doesn’t belong to them to people who are prepared to pay a premium for the use of it for a set length of time.

In simple words: People put money into a deposit account with the expectation of earning interest at a set rate. For example, 3% per annum. That money does not languish in the bank vaults, it needs to earn it’s keep. The bank lends this money to other people who need a short term loan, at a higher rate, perhaps 6.5%, but only to those who the manager trusts to repay on time.

That is the whole point. The bank manager must trust you before you qualify for a loan of any size. On the other hand he needs to have as much of his clients money earning money for the bank, as is prudent.

How do you earn the banks trust? When you open your business account, if it is a large branch, you will be assigned a business adviser, who will be the person who will advise you on the running of your account. He/She will give you advice on insurance and accounting amongst other things. He/She will also be the one you will see regarding taking out a business loan.

Keep in regular touch with your adviser. Make sure that you are someone he/she knows. Not just a number on an account. Your business adviser should be on top of your list of business friends. In a very short space of time, you will be offered overdraft facilities. Use them, but stay well within your limit and be sure you are not in the red at the end of the month when your bank statement arrives.

Now is the time to ask for a small loan. You don’t need it but get it just the same. Pay it back in plenty of time. (You have just earned your first brownie point.) Wait a couple of months and request another loan. A slightly bigger one this time. Be sure to pay it back within the time limit. (More brownie points.) All this time you are building your business and the money passing through your account is increasing month by month. Do this a couple of times a year to increase your standing and keep your name in front of those that matter..

The day will come, as it almost always does with an expanding business when an opportunity presents its-self that requires a serious capital input. What are your chances of getting a bank loan to cover it? You have a very good record at your bank. You have used your overdraft facilities sensibly. They make a small profit from this. You have had several loans in the past and always repaid them on time. They made a profit from the interest on the loans. The money passing through your account is steadily increasing.

You are what is known as ‘In good standing’ with the bank. You are just the type of person that the bank likes to deal with. Your loan is assured. Just make sure that you repay this one on time and the manager will be inviting you to a round or two of golf. You can’t have too many friends in high places.

Homer.

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