independent

Monday 19 August 2019

How to prepare to apply for a business loan from the bank

QI want to expand my business but need some extra funding to do so. Everything I've heard suggests it's extremely difficult to get a business loan at the moment. Is there anything I can do to increase my chances of securing approval?

AEvery business needs finance to survive and grow and obtaining this funding in today's challenging economic climate can seem like a daunting task. However, there are steps you can take to put your business in the best position to obtain the funding it needs to prosper.

Before approaching your bank for a loan, assess the current state of your business. It's a good idea to perform a SWOT analysis; that is to look at the strengths, weaknesses, opportunities and threats that currently exist for your business.

The bank will need to see that the business is viable, in other words that it's currently trading successfully and will continue to do so in the foreseeable future. They will look for a history of profit and/or cash generation as well as a good credit record. They may also examine your personal credit history, especially if your business is not long established.

Most importantly, they will want to see a comprehensive business plan, together with appropriate financial information and projections. This includes up to three years of accounts, management accounts and cash flow statements for the current period as well as your debtors and creditors listings. You will also need to include future financial and cash flow forecasts for at least one year. The importance of a well-defined business plan can't be overstated. Keep an eye out for next week's question where I will discuss this issue further.

Your bank will look for specific details regarding the purpose of the loan. For example, if it's for new premises they may ask for the address, valuation and estimated fit-out costs. You need to ensure that the amount of credit you're applying for is realistic. The bank will pay particular attention to the repayment capacity of your business, so the plan should give a clear indication of how the loan will be repaid.

Before you go to the bank, you should meet with your accountant or financial advisor to review all aspects of your business plan and ensure that you have a thorough understanding of the current position of your business. You may wish to consider bringing your accountant or advisor with you to the bank, if you feel it would be helpful.

When you do meet with the bank's representative, make sure you're well prepared with a polished presentation. Try to anticipate any questions that may arise and answer them confidently. You need to be clear and articulate about the contents of your business plan and show how the proposals are backed up by solid figures.

Don't avoid any negative issues, instead you should specifically mention potential risk areas in your industry and how you intend to deal with them. The key to increasing the chances of securing loan approval for your business is thorough preparation.

Make sure your financials are in order, you have a clear plan and you're ready to discuss the specifics of your business situation with your bank. Going in unprepared not only sends the wrong message, but could prove to be extremely costly for your business.

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