When you find a lending officer at a bank or non-bank lender willing to work with you, they do so believing your company’s reputation is good and the owner’s character is strong. Once they form their opinion about you and your company, they stay firm in their belief until something happens that changes their opinion.
My experience in 15 years in banking and finance is that a good lender uses intuition as one of their tools to evaluate character. Whether good or bad, lenders often form their opinions in the first five minutes after first meeting you. When it comes to character of borrowers, bankers want to feel that you meet their character criteria 100%.
Rarely do lenders find perfect borrowers or owners of companies. When you disclose something to your lender that may potentially negatively impact your loan request at the appropriate time, you are much more likely that the lender will be able to help you then if you fail to disclose it and have your lender finds out themselves. The worst scenario is if a lender doesn’t know something potentially negative and finds out about it from someone in management of the bank. Once that trust with your lender is broken, it is very hard to restore.
Examples of facts about you and your business that you should disclose up front include:
- Existence of any tax liens of any kind
- Federal withholding taxes not current
- Existence of any lawsuits whether you are the plaintiff or defendant
- Felony criminal convictions of any 20% or greater owners of the company
- Sex offender status of any 20% or greater owner
- Misdemeanor convictions of any crime of “moral turpitude,” theft or embezzlement
- Personal tax liens or substantial personal tax obligations not paid
This list is only a partial list. The rule you should follow is if you think they would want to know if you were in their position, they probably do.
Being proactive about making disclosures such as the ones on the list above will save every one time and help the lender develop better trust with you. Not all of the items on the list necessarily mean you will be declined for a loan. If your loan officer is equipped with the knowledge of the facts and circumstances than they will be better able to help you offset any negative effect these items may have on your loan request.
It goes without saying that you should never omit or misrepresent a fact on any personal financial statement or application. I don’t want to scare anyone, but if you are not honest on an application for a loan with a federally insured bank or credit union, you could face some really serious legal problems.
To learn more about the way lenders look at your company (including character) listen to the AllBusiness.com podcast about how banks use the six “Cs of Credit” to evaluate loan requests.