Everyone seems to be complaining about all the issues and frustrations that have come as a result of the GFC. Finance from banks is one of the top causes of these complaints, with good reason; it is a lot harder to secure a loan than it was ten years ago. Banks now demand perfect applications and then you might, just might, on the off chance; secure a loan.
This is not to say that you won’t ever secure a loan, it’s just harder – so we have come up with a few ideas to help you on the way to finance your business. When considering your options, there are a lot of factors that can influence your ability to get that loan. You must prepare, assess and manage.
Before you go shopping for the best deal with the lowest interest rates; prepare your financial information. Most banks require a ‘three-way forecast’ which includes; a profit and loss budget, cash flow forecast and balance sheet forecast. Being prepared before you meet with the bank helps you to put your best foot forward. Regardless of how the financials are evaluated, being prepared will show the bank your professionalism and at the least, you will create an excellent first impression.
From the results of the three-way forecasting, you will be able to decide how important the loan is – for you, your business and your bank. After evaluating the results, you may even find that taking on a loan may not be necessary. However, if it is, when you meet with the bank be frank; know your business’ strengths and weaknesses, answer questions honestly. Be prepared; if you are a high-risk customer to the bank, you will pay a higher interest rate. Providing honest information and building and maintaining a good relationship with your bank will make future dealings easier, especially if any unforeseen circumstances arise. Help your bank assess your business accurately so that you have the best chance in securing that funding.
Sometimes a bank will require you to report your progress. It is important to manage your loan repayments like any other part of your business. Consulting with your accountant or adviser on getting these transactions right in your accounting system is important. You should frequently assess your cash flow, both historical and projected and compare your budget to the actuals, maybe even review some key KPIs as the bank may request this as part of their risk assessment process. In this case, they can make sure that you can still afford the loan. In maintaining this information flow you will understand how the loan has helped your business and forecast your financial stability.
By following these three simple steps you will be able to anticipate how to have the best chance of succeeding with your loan application. At the end of the day, this loan could help your business reach that next milestone, whether to just stay afloat or to achieve your next growth stage. So be prepared, assess your financials and manage the outcome.