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The Blame Game: Banks vs. Borrowers

Updated: Jul 23, 2020

Slow turn-around times on bank loans turn off borrowers, but who is really to blame?

Ask any small business owner applying for a bank loan what their biggest gripe with the process is, and more than a few are likely to mention the tortoise pace at which loan applications are reviewed and approved.

Bank loans are notorious for their lengthy loan application processes, with most taking a few weeks to complete. Though the economy is in recovery mode, the recession made a huge impact on how banks deal with small business loans. Banks now require more from a loan applicant and are stricter about who they lend to. For this reason, the underwriting process can seem to drag on, and this puts a strain on small business owners who find themselves in the “need cash now” boat.

‘Be Prepared!’

In our loan brokerage firm we often hear from borrowers about issues with bank loan processing times. A business needs a loan quickly and is finding the approval process with FDIC-insured banks to be problematic. When we dive deeper into the supposed issues, though, we often find that the borrower is more to blame for the lag than the bank.

Unprepared borrowers are in fact one of the main causes of slow bank loan processing times. A business owner with outdated financials, issues or extensions on tax returns, and poor communication will undoubtedly find it harder to navigate the bank loan process than a more prepared loan applicant.

On the other hand, a timely exchange of up-to-date financials and tax returns, as well as open communication with the bank loan officer assigned to the application, can drastically speed up the process.

As a small business owner myself, I completely understand how financials can fall by the wayside at times. We become so engrossed in the day-to-day operations of the company that reconciling our bank statements gets pushed further down the list of importance. However, if you are seeking a loan, staying current and connected with your financials is one of the best ways to accelerate the bank loan application process—while also relieving headaches for both yourself and your loan officer.

Three Tips

Three simple tips for ensuring that you are up-to-date with your financials are to:

  • Hire a part-time bookkeeper,

  • Put in more face time with your accountant, and

  • Conduct an annual debt review.

Hiring a bookkeeper who works with your company even once a month will help you keep your bank accounts reconciled and your balance sheets up to date. Meeting with your accountant quarterly instead of just once a year at tax season will help you to create some checks and balances—and force you to be more disciplined with your recordkeeping and tax preparation. Finally, all small business owners who have debt should also conduct an annual debt review.

Not only will these three steps make you more appealing to potential loan brokers, they will also help you maintain best business practices by remaining current with your financials.

While it’s true that banks can be very bureaucratic and slow moving when it comes to loan application turnaround times, we have found that about 2/3 of the time, the borrower is the one slowing down the process.

Avoiding the Alternative Loan Trap

For small business owners, this can mean more than just a headache. Borrowers who are in a time crunch for obtaining working capital may find themselves straying from traditional bank loans and instead opting for higher priced alternative loan options. The same scenario may be true for borrowers who have poor credit, limited collateral, or tax issues. The tradeoff here is that while alternative loans accommodate those who need a quick loan without much paperwork being exchanged, these loans come at a much higher cost than a traditional bank loan. With bank loans, the borrower has the opportunity to get money at dramatically cheaper rates, even if it takes a few more weeks to acquire.

To avoid getting yourself into a situation where you need to take financing at a high interest rate and short amortization period, keep your financials updated and our business in good standing. When the time comes to obtain working capital, you’ll navigate the application process easily and increase your chances of securing financing.

A fourth tip is to be on top of your daily cash expenses, data entry of bills from vendors, invoices from customers, and payments of liabilities so their balance sheet and profit and loss is accurate and an accurate cash flow report can be prepared (useful for ascertaining if one can pay back a loan, gasp).

I recently had a conversation with the office manager of a small business who didn’t think it was important to enter their vendor bills, credit card charges, and debit card transactions as well as creating customer invoices and payments and refused to use the bank feeds or downloads feature in their accounting and bookkeeping software program.

That is like expecting a car to run but refusing to check the fluids and tires on a regular basis.

One thing that I recommend to my clients who want to apply for loans is to work with someone who can give them access to financial intelligence programs like Finagraph to see where their financial ratios are at.


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