Banks or banking institution has become the indispensable ally of the investors before or during the operation of their business. They use it as a tool to generate Capital. They enter into a LOAN transaction as a source of increasing working capital because generally, bank rates on loans are lower than the rates of other private lending institutions. As a comparison, the lending rates of universal and commercial banks are lower than that of a thrift (savings and private development banks) or rural bank. However, better access is being offered by the thrift and rural banks.

Let us consider the following tips in getting a bank loan:

1. Get a loan only when you need it and when it is the only option left.

2. Before you go to the bank, make sure you know your exact purpose, how much you need, how long before you can repay the loan and what collateral you can provide.

3. Match the term of your loan with your purpose. If your purpose is short-term (like financing additional inventories), do not get a short term loan and vise-versa if your purpose is a long term loan (like purchasing machinery), do not get a short term loan.

4. Avoid making a loan to any bank which offers an interest higher than your Return on Investment (ROI). Suppose your ROI for the year is 10 percent, do not get a loan with a 15 percent interest rate per annum.

5. If you or any of your company’s incorporators has a pending criminal or civil case, you should first secure a court clearance because a derogatory record will greatly affect your loan applications.

6. Ask for payment options that fit your operating cycle. If your company collects cash every 90 days, then opt for a quarterly payment on interest and principal. Ask the loan officer regarding the different payment options they can give you.

7. Ask for an estimate of loan charges because usually the debtor doesn’t know that the bank charges for a processing fee, service fee and other related fees. You can ask the bank officer to deduct this from the proceeds of your loan.

8. Ensure that your collateral is acceptable, marketable and free from any lien and encumbrances. There are different types of loans such as real estate mortgage loan, auto loan, back-to-back against peso or dollar savings or time deposit, loan against second hand cars, against inventories, against shares of stock, against account receivable, clean loan and others. If your collateral is not acceptable or there are liens and encumbrances on your collateral, your loan applications will be disapproved.