By Rob Warlow
Depending on whom you listen to it appears that the UK economy is slowly climbing out of recession and during periods of growth there’s one thing most businesses will need more of … finance.
We all know that getting a business loan from a bank is not as easy as it once was. Back in the ‘good ‘ole days’ it was not uncommon to get a business loan following a brief chat or even on the back of a phone call. If you ask your bank today you will get a long shopping list of information needed.
Before approaching the bank the key to getting support is preparation, preparation, preparation.
When looking to apply for a business loan to help you get one step ahead here are some tips.
Write a Business Plan
Relying on just a face-to-face interview with your bank is not going to cut it today. In my discussions with Bank Managers they invariably say that one of the biggest frustrations they have in that business owners rarely present them with a Business Plan.
You can’t take the risk of the bank not ‘getting’ your business; if they don’t ‘get it’ then you’ll only get one answer - no. Writing a Business Plan reduces this risk; you’re in control of the message you want to get across.
There’s a preconception that a Business Plan has to be a complex document. It does not and should not be a 100 page submission.
To get you started here is a simple four-part outline:
Where your business has come from and your background
Where your business is today
Where you want it to be
And how you are going to get there
Before getting in front of your bank, set time and resources aside to write a Business Plan; it can be as simple as you want it to be.
Get Your Financial Information Up to Date
You may not like it but bankers get excited by numbers! Your annual Financial Statements, which your accountant sends you every year, may not mean much to you, but for the bank your financial performance is the foundation of their assessment process.
If you have been slack in keeping your books up to date speak to your accountant today; accept that the bank is not going to take your request for a business loan seriously until it has a set of Accounts on the desk.
Bring Your Trading Figures Bang Up to Date
So you’ve got your Financial Statements up to date, all within four months after your year-end. Is the bank happy now? No! You have to understand that your Financial Statements are out of date within days of your year-end. The bank will want up to date trading information; it wants to see how you performed last month, so you have to present them with your Management Accounts. These are a mini version of your annual figures but more up to date.
To be honest, even if you’re not going to approaching your bank for a business loan, you should be producing Management Accounts anyway. You must be right on top of what’s going on in your business.
Prepare Financial Projections
Your Business Plan presents your vision in words and perhaps pictures; your financial projections lay out your future in terms of numbers.
There are three reasons why the bank wants to see financial projections:
To satisfy itself that your business can afford to repayment the business loan you are requesting
To use them as a way of monitoring your actual performance compared to the numbers you projected. Any deviation from plan will then act as a warning sign
To force you to review your project in terms of numbers as opposed to a gut feeling that your idea will be a success
Don’t underestimate the importance of this task; you need to provide evidence to the bank that you are comfortable with the numbers aspect of your business and that you can afford to repay the business loan.
Compile a Personal Financial Summary
The banks will be interested in your personal financial position. As a result of the recent tough times, savings have been depleted, and credit cards maxed to the limit to keep your business afloat. The bank will want to know if there are any skeletons in the cupboard and to assess your ability to support business going forward.
Prepare an Income and Expenditure Report which lists your monthly household ingoings and outgoings. Then prepare an Asset and Liabilities Statement which details your assets (house, car, and savings) and your liabilities (mortgage, car loan, personal loan, and credit card).
But There Could Be More …
This list is not exhaustive. Each loan request and business is unique so the information requested will be tailored accordingly.
If you prepare in advance you can save a lot of time and stress so start your preparation now.
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 via Amazon or on his website, www.businessloanservices.co.uk