Credit offers are therefore currently diverse and varied with interest rates and conditions which differ from one bank to another. If you have a project to finance, the current environment remains favorable to credits, with rates offered almost at the lowest.
It is important to be well informed and to prepare your file well before applying for a loan. How to negotiate it well? What should you avoid? What should you think about?
1 # A Bank is above all a Business
It must not be forgotten that a bank is above all a business like any other and will strive, like every business, to optimize its profitability while minimizing its risk.
This is why a bank will be careful and ask for many documents and many guarantees when there is a credit request because it will analyze the risks that a file presents in relation to its future profitability. It’s up to you to convince her of the viability and profitability of your project.
2 # Your Project must be Viable
If you plan to create or take over a business, banks will turn more to projects in areas where they have knowledge. In any case, you will have to present your project in detail in a business plan to explain to the bank what you intend to do, how and to obtain what results.
To determine if a project is viable, the bank would naturally aim to figure out whether or not it is made successful and will use quantified projections, like the balance sheet and the estimate of profits over a 3-year span or 5 years in general.
Whether the project is profitable or not, the bank must make sure that you can have enough to pay the credit maturities but also so that you can have some flexibility for the development of your business and a margin of safety.
It will thus be necessary to determine your working capital requirement or WCR, which represents the difference between your stable resources and your stable jobs.
Each hypothesis that you will present in your business plan must be as realistic as possible, and you can help yourself with this by quotes that you have already made, order commitments, estimates of usage costs, etc.
3 # Your Education, Work experience, and Personal Life affect your Credit Application
If it is a question of creating your business, it is important for your bank that your studies and/or your professional experience agree with the project that you have because, depending on the nature of your project, the bank considers that ” Some training, some specific level of training and/or some professional experience is required.
If you want to obtain a mortgage, know that banks are cautious and fear professional instability. It is best to have an open-ended contract.
Seniority in a company is also appreciated. If you are in a liberal profession or a craftsman, it would be good to arrive at the bank with the financial statements of your last 3 years minimum.
4 # Your Contribution to obtain a loan must be sufficient
It is advisable to balance your own funds with the funds you wish to borrow. The complete absence of seed money is generally unacceptable. Although there is no obligation and it differs from one bank to another, the minimum contribution is generally 10% of the amount borrowed – some banks ask between 20% and 30%. When it concerns a mortgage, the bank estimates that the contribution must cover at least the costs of notary, file, real estate agency, guarantee etc.
The bank will assess your personal wealth and what you will have left after you have paid the contribution. If, as a result of the credit and the contribution that you have made, you have too low means, the bank will not be satisfied because it will see too great a risk.
5 # Monitor your debt capacity, your savings capacity and your credit history
When a credit request is made, the bank studies your financial situation. You must, therefore, avoid being overdrawn for a while before applying for credit or having bad records on previous credits.
You should also monitor your debt capacity. It is generally said that the amount of the loan should not exceed one-third of your net income.
The bank will also be sensitive to your savings capacity, that is to say the part of your income that you decide to set aside before, but also after, the loan. Repaying credit should not “exhaust” your ability to save money.
6 # Submit a complete and solid credit application to the bank
This seems obvious but it is necessary to prepare well before applying for a credit and to offer your bank a complete file with all the documents that will be requested:
- 3 tax notices,
- Last 3 pay slips,
- Employment contract,
- Last 3 bank account statements,
- Proof of identity,
- Proof of address,
- Proof of any additional money that increases your income (allowances, pension, rental income or long-term compensation, etc.),
- Business plan
Clearly explain the use you will make of the money and show trustworthy.
You will have understood that preparation plays an essential role in your loan application. To get the best loan, it is dispensable to shop around to get an idea of the best rate available on the market. It is also necessary to compare the different methods: nominal interest rate, global effective rate (TEG), conditions for early repayment, repayment duration, etc.
You should then have an interview with your bank since they know you and your history. If you are the right customer, you could get advantageous credit terms. Make it clear, however, that you are going to study other proposals.
You can also present other credit offers obtained to your advisor to start negotiations if the offer he offers is not as attractive as the others. Do not hesitate to put in competition the banking establishments and those specialized in credit.