How To Get A Bank Loan With Ease

Here are some tips on getting one. If you are a first-time entrepreneur and you want to start your own business you are almost undoubtedly going to need a bank loan.

That doesnt mean you shouldnt try but dont expect the process to be a cake walk. You must realize that because you dont have a business ownership track record securing a bank loan will be an uphill battle.

It wont be. Any bank will tell you that a small business loan has risk factors and that costs of servicing these smaller accounts are primarily responsible for their disinterest in offering a bank loan to an aspiring entrepreneur.

Your first time business bank loan can happen, however, and here are some ideas on how to increase your chances of getting that small business bank loan.

The first thing to remember is to think positive and assume you are entering that bank from a position of strength. Keep in mind that you are customer, not a beggar. Banks sell loans, you buy. For the most part those banks want and need your loan business and the loan officers are tasked with getting your business.

While it certainly is always a good idea to start with the bank that is familiar with you as a person - the one with which youve done business regularly - it is also important that you seek a bank that has underwritten loans for others in your industry and stays familiar with your industry. Look for banks that actively finance small businesses.

There are also banks whose specialty is government programs - participation by the government in funding or guaranteeing loans. Information on the latter would be readily available at your local Small Business Development Center of the Small Business Administration (SBA.)

Keep in mind, however, that no matter how dedicated to small business financing, the bank is going to ask for some fairly hefty collateral for your start up business.

Be prepared to prove to that bank loan officer that lending you and your new company money is not a high risk proposition.

Complete your loan application prior to arrival if you can, bring copies of three years of financial statements such as cash flow, testimonials from satisfied and returning customers, your business plan and a cover letter that spells out why you need the money and how your business is now thriving and will only do better with that bank loan funding.

If you are fully prepared to ask for that bank loan, no question should surprise you. While you should have the details in your business plan already, be prepared to talk about how much money your firm will need and for how long, and what the bank loan funding will be used for.

Youll also need to show a well-thought-out and achievable repayment plan, with a payment schedule. Youll need to talk about whether you are going to buy new equipment, supplies and assets, pay off some old bills, or spend it on operating expenses.

The other is that your documents should all be neat, easy to read, clear and clean. Your garb should be that you would wear to meet a client. The first is that you should dress professionally to meet the loan officer. Two important points that should be made about your face to face bank loan interview are often discounted.

FHA Closing Costs - How They Differ From Conventional Mortgages

However, as is the case with most government programs, there?s loopholes. Since FHA is government operated, there are specific safeguards which have been designed to protect borrowers from paying too much closing costs. Fannie and Freddie started out as a government charter but privatized over a decade ago. FHA mortgages are the last of the government sponsored mortgages.

FHA Closing costs differ from conventional mortgages by the amount the lender can charge and the amount of insurance coverage homeowners are required to have.

Before you apply, you should insist that the lender disclose their fees on a form called good faith estimate (GFE, you can print a blank form from the link below.) In the past, lenders have been known to be very liberal when applying their fees; these extra charges are called ?junk fees.? These costs are passed along to the borrower in the form of higher rates, or closing costs that are added directly to the closing statement (HUD). When lenders and brokers close a loan, they all incur cost during the process.

If you look at your GFE you will see a grouping of fees on the left hand side. Each fee is labeled 801, 802, and so on. These are the lenders fees. FHA has strict guidelines pertaining to the fees that lenders are allowed to charge when closing a loan. Unfortunately, they are very open-minded on the amount of discount points and origination points that they allow lenders to charge.

Lenders are allowed to charge one origination point and two discount points plus the ?usual and customary? third party closing costs that FHA deems relevant. If you combine those fees with the additional money that the lenders can earn from ?marking-up? the interest rate; lenders could make as much as $12,000 profit on a $200,000 loan.

In all fairness, most lenders don?t fleece their customers like this, however some do. If you are considering taking out an FHA mortgage I advise you to look at your good faith estimate carefully. If you see discount points listed in the ?800? block of numbers do not close your loan. Some lenders will give very compelling arguments as to why they need to charge them, don?t believe it. By disallowing the lender to use discount points, you have effectively forced them to keep their closing costs in-check.

Another difference in charges that you will see over conventional mortgages pertains to the insurance each agency requires when taking out the loan. Conventional mortgages (Fannie Mae, Freddie Mac) will allow borrowers to forego the mortgage insurance if the loan is less than 80% of the appraised value. Not so with FHA, when you take out an FHA mortgage you will be forced to have mortgage insurance regardless of the loan to value. The exception is when you take out a 15 year mortgage, if your loan is less that 90% of the value of the home you can forego the monthly mortgage insurance.

Also, FHA charges an up front mortgage insurance premium (MIP). This is a one time, lump sum that is added on top of your loan. The MIP is calculated at 1.5% of the mortgage?s loan amount, i.e. a $100,000 mortgage would become a $101,500 loan amount. This premium is refundable on a prorated basis but, the formula that is used to calculate it is stored in the same warehouse that Indiana Jones keeps his worldly treasures.

A conventional mortgage charges PMI just like an FHA loan does, however it can be easily removed one the home falls below 80% loan to value, unlike FHA mortgage insurance. Even if your loan to value is a little high, you may still want to consider a conventional mortgage. If you have good credit and a low loan to value, a conventional mortgage is definitely the best road to take.

However, it really depends on what your specific circumstances are as to whether or not an FHA mortgage is right for you. When you begin to add up the differences between FHA closing costs and conventional mortgages, it would appear that FHA mortgages have the higher closing.

Not to mention that FHA allows homebuyers to put as little as 3% down when buying a home. Of course there are more guidelines, but you get my point. FHA looks at the property, the income, the job stability and the overall responsibility the borrower has exercised in the last year. FHA is a common-sense loan, meaning your credit score doesn?t have a bearing on your ability to get approved.

The most important reason is that FHA is not a credit score driven product. On the other hand, if you have average credit and a higher loan to value FHA becomes the clear winner when choosing the most beneficial loan.