Banks are tarred with being the cause of the recession that has plagued the global and UK economy for the past four years. Whatever truth there is in this point of view one thing is certain: almost without exception they are now risk-averse.
Unless you can prove that your need for financial support is well founded you will either fail to negotiate the loan you need, or, you will have to pay a premium rate.
In this posting we have highlighted just a few of the issues you should consider before making an application for funding:
- Do you have a good track record with your existing lender? If yes then an application can be supported by previous bank statements proving that you can keep to your agreements.
- Can you partner up with an accountant to prepare and present your application? This may give the bank some comfort.
- Are you clear why you need the funding? Vague assertions that you need more working capital will not inspire confidence.
- Are you going to pass a credit reference check?
- Does the present management team have a good track record and are they positively motivated to achieve the required results?
- Do you have a healthy Balance Sheet? Are you highly geared? Why is this?
- Are you reliant on one or two major customers?
- Are you asking for support to develop an existing, well established business, or is the application for a new venture? If the latter bank will need additional evidence that you have thought through the implications.
- You will need to prepare a business plan and the more detailed information you can provide the better.
- You will also need to consider the extent to which you are prepared to offer guarantees and security. Leaving the bank to carry all the risk is unlikely to be a successful strategy.
The days of knocking together a quick spreadsheet and taking the bank manager to lunch are long gone. Your manager will need to run your application through a rigorous lending process before a decision can be made. Planning is a key ingredient. Put yourself in the bank’s position and consider their reaction to your application: what information would you need if you were approached for financial support?