You may have been through some sort of procedure regarding a loan from a bank before – a car loan, a mortgage, a loan to improve your house. The bad news is: getting a business loan from a bank is probably going to be a lot harder than getting approval for the previously-mentioned examples. It’s harder because it’s a business loan, and you are technically not personally liable if something goes wrong.
Banks tend to apply tough rules when it comes to business loans because they understand that it’s pure business; hence, they need to have faith in the business itself, as well as in the appointed managers. If you’re thinking about a business loan, there are a couple of things you need to keep in mind before you even apply. Are you thinking of getting a loan from a bank for your business? Here’s what you need to know first.
Have a plan
Going to a lending institution (such as a bank) and not being clear regarding what exactly the money will be used for is not a good plan. Have your explanation ready; make sure you can explain exactly why the extra capital is needed, and how it will result in more income for you in the future. Present a plan. Present it professionally.
Show your reliability
Banks have a tendency to look for two things: the ability to pay back, and the willingness to pay back. You may have a good plan, but you need to convince them that paying them back is at the top of your priority list. Expect to have your credit rating examined, and argue that you are a reliable investment.
Reduction of risk
The more you can lessen the risk to the bank, the more willing they will be to endorse the loan. Put up security or show the bank that you are putting up your own property as collateral.
Consider the covenant
Beware of the bank’s terms; check the covenant.
There are 7 things you must show (CAMPARI) – Character, Ability, Means, Purpose, Amount, Repayment, Insurance. It pays to learn about them.
You have to understand the mindset of the bank if you want to deal with them – they are in it for the money, just like you are, and if they do not see some form of guarantee that their investment will be returned to them (plus a good return on that investment, of course), then it’s simply not worth their time. Be prepared to present to them what they need to see and hear when making your sales pitch. Don’t take it personally and, in case of doubt, consult a professional accountant such as the central London accountants from GSM & Co. to help you out.