The lender has three questions to answer before she can say ‘Yes’ to your loan request:
- Would you pay the loan if you possibly could?
- Does it look like you can pay it from operating income?
- What is the back-up plan in case you can’t?
However, the answers to numbers 2 and 3 are not even relevant if your lender can’t get the right answer to the first question. What your prospective lender is trying to determine with the first question is:
- Could they do this deal on a handshake?
- Is your word your bond?
- Do you keep your promises?
The most important decision the lender will make about you and your business is whether they can trust you.
Yes, this is subjective and they won’t find the answer specifically in any of the documents provided.They will find it by how you say what you say to them and their interpretation of the documents you provide.
- Do you report all your income or do you confide in your banker that you do some of your work under the table’?
- Does your company pay for your personal cars and travel?
- Do you resist providing the tax returns and schedules the lender requests?
- Do you brag about deals that might sound underhanded (even if they aren’t) without providing the full context?
- Do you come across as someone who is ruthless in business (in a bad way)?
- Do you provide the interim financial information you agreed to on time?
- Or does the lender have to keep hounding you for information you promised to send?
Everything you do, everything you say, and everything you provide to the lender is filtered through this ‘Character’ filter. If you do not pass this test, your ability to pay and the strength of your collateral and personal net worth will be irrelevant.
Help the lender make this first and most important decision. Let them know they can trust you.