07/06/11

By Rob Warlow

When it comes to applying for a business loan one of the common misunderstandings small business owners have is whom the bank is lending to. Yes, you may be operating a sizeable business and perhaps via a Limited Company, but in the SME market the key driver in any business is undoubtedly the founder … you.

Your vision, your passion, your commitment is what defines the success, or otherwise, of your business, so the bank will be more interested in what you bring to the party as opposed to focusing totally on ‘the business’. You may have an impressive brand and glitzy offices but if it’s all down to you, then from the bank’s perspective, ‘you’ are the key to a safe lending.

So what is the bank looking for when assessing your role in the business?

Here are just a few aspects of a person's character which banks consider important.

What Is Your Level of Commitment to the Business?

The bank can assess your level of commitment in a variety of ways. For example, it can come across in the language you use and the passion with which you talk about the business. The bank is more likely to support you if you are passionate and enthusiastic; it's important to look and sound confident.

Your commitment can also be measured in more tangible terms such as how much money you have invested to date, or are injecting if it’s a new project. If you have regularly injected cash into the business to assist with working capital or to purchase new machinery, then this is a positive sign.

Alternatively, if you have consistently withdrawn cash from the business, especially amounts greater than the profits earned, then the bank will certainly want to know why.

What about the security you have, or are willing to pledge, to support your borrowings? The issue of security, mainly in respect of the residential home, is an emotive subject and often an area of conflict between business owners and banks. The pledging of personal assets to support borrowing will undoubtedly signal a high level of commitment to the bank but it is a decision which needs careful consideration on your part.

So a question to ask yourself is how does your commitment to the business look to an outsider?

Can You Be Considered a Person of Integrity and Honesty?

These are complex characteristics to assess but we all make quick judgements about individuals within a few minutes of meeting them. Your banker is going to make the same snap decision.

To back up his intuition your Manager is going to go in search of facts to confirm or deny his assessment. She can get information about you from a variety of sources. Staff within the bank are often a good source of knowledge, especially if you are operating within a tight business community, where everyone knows something about someone. The bank will also review your Credit file, which is publicly available and may reveal aspects of your financial background which need further investigation.

Your bank statements, and the way you operate your bank account, can reveal a lot about you. Are you constantly going overdrawn or breaching your overdraft limit without prior approval? Has the bank resorted to bouncing your cheques?

Any negative data, or actions which bring your financial integrity into question, will go against you.

What Was The Source of Introduction?

If you’re starting a new business, or looking for a new bank for your existing business, how you were introduced to the bank can add a positive element to the assessment.

In selecting the bank to approach you can either turn up cold on the doorstep, or you could ask a business colleague to introduce you to their bank.

If your colleague knows you well he may be prepared to do more than point you in the right direction … he may be prepared to formally vouch for you. By doing this, he's telling his Manager that in his opinion you have a good chance of success and that you’re worthy of support.

If your introducer is a respected business person within the bank, then this type of introduction will be considered a positive point in your favour.

In the current climate, getting a bank to support you is more than presenting a compelling Business Plan; the bank will look beyond the words on the paper and assess what you are bringing to the table.

Do you stack up?

About The Author

Rob Warlow helps business owner’s deal with their banks to obtain funding or to assist in re-building damaged client-banker relationships. He has written a book called ‘Loan Sharp: Get the Business Finance You Deserve’ which is available on Amazon or via his website, www.businessloanservices.co.uk

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