Potential lenders may financing objections to giving you money for a variety of reasons.
By: Hitesh Khan/
While family and friends can be an excellent potential source of financing for your business, as a borrower you may still have some concerns about mixing money with people you know. And if they decide not to give you money, sometimes they may tell you why, other times they may not. Either way, it is important for you to understand these financing objections so you can respond to them appropriately.
Below are four categories of a lender’s financing objections, as well as suggestions for how to overcome them:
1. Financing Objections: These objections typically focus on the lender’s financial situation.
Lender objection: “I don’t have the money to give you.”
Suggestion to overcome objection: Consider asking for a lower amount. Try to find out how much money your lender can afford to give you.
It is important for you to think about a realistic amount of money each person might be able to lend you, and write down that amount next to their name. You can also create a worksheet in developing a lenders’ list.
Lender objection: “I can’t access the money. It’s tied up in an investment, retirement plan, etc.”
Suggestion to overcome objection: Encourage your lender to contact their [financial advisor, accountant, etc.] to find out if they can move the money without being penalized. For example, some retirement accounts and annuity plans allow money to be lent to a small business without paying a penalty.
2. Business Risk Objections: These objections typically focus on the lender’s perception of your business.
Lender objection: “I don’t believe your business will succeed.”
Suggestion to overcome objection: Review your business plan with your lender to show them why you believe the business will succeed. Consider asking your lender for suggestions on what improvements you could make so they feel more comfortable about your business.
Lender objection: “I don’t think you have the skills to run your business.”
Suggestion to overcome objection: Emphasize your experience. Talk to your lender about former jobs you’ve held that relate to your small business, entrepreneurial classes you have taken, or people you plan on hiring.
3. Relationship Risk Objections: These objections typically focus on the lender’s perception of how lending you money will impact their relationship with you.
Lender objection: “I’m concerned that our relationship will suffer if there’s a problem paying back the loan.” Suggestion to overcome objection: Recommend using a loan administration company to manage the repayment process. This way, there’s a buffer between you and the person from whom you borrow.
Lender objection: “What if we disagree over the terms of the loan after the fact?”
Suggestion to overcome objection: Emphasize that everything will be documented in writing, and that detailed records will be kept–all of which can be handled by a neutral third party.
4. Outside Pressure Objections: These objections typically focus on external factors that affect the lender.
Lender objection: “My [significant other] won’t like the idea of my lending you the money.”
Suggestion to overcome objection: Offer to review your loan proposal with your lender’s significant other. Also, consider recommending the use of a neutral third party to handle the process.
Lender objection: “I have a friend who lent someone money and never got paid back a cent.”
Suggestion to overcome objection: Emphasize that if the loan is set up and managed correctly, the chance of successful repayment is much higher. Additionally, you should stress why you are a good borrower. You might even offer to share your credit history to prove it.
If you are not sure how to respond to a lender’s financing objections, you may contact a loan specialist at iCompareLoan.
When approaching someone you know for money, it is important that you develop a strong loan proposal that backs up your request with facts and figures. Merely asking for the money is practically a guarantee that you will be turned down. Consider borrowing from several people rather than trying to get it all from one person. This way, you can ask for an amount from each person based on what they can afford to give you, and not on what you need.
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