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Bowling over your bank manager

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aa22-jun-jul-2007-bowling-over-your-bank-managerBanks are in the game of lending money, so why do we often get hit for six when seeking finance and how can you give yourself the best chance of being selected for approval?
 
 
STUMPED
 
At some point many of us have suffered the disappointment of rejection when making a loan application to a financier. When it happens, it’s easy to overlook the fact that your bank manager must make loans in order to satisfy ambitious sales targets, secure their bonus and ultimately make a contribution towards the profits of their employer.
 
In recent years, competition among lenders has become cut throat and given rise to new levels of flexibility, so gaining approval for your business loan has become substantially easier if you know how to make your case.
 
The secret to getting lenders fighting to provide your business with finance is to give them confidence that they’ll get their money back. With an appropriate presentation and package of information, approval is well with the grasp of many, including those that may have been previously declined. 
 
THE COACHING TEAM
 
If you’re unsure of the most suitable finance facility for your needs, it’s important to get the right advice. Speak to a number of traditional banks and alternative lenders, as well as advisors, such as finance brokers and accountants. Discuss how you plan to use the funds, your desired repayment structure and the security you’re able to offer. Their collective advice can save you significant amounts of time and money, not to mention refer you to some well regarded lending contacts.
 
GETTING OFF THE MARK
 
Your first task is to short-list suitable lenders that offer the type of finance you’re seeking. Once your potential lenders are selected, you’ll need to convince each of them that you possess comprehensive knowledge of your business and realistic plans that make you a low-risk customer they should lend money too. There are two ways to do this. Start with a face-to-face presentation on each aspect of your business, then give each potential lender a clear and comprehensive package of supporting documents.
 
After the initial meeting, a majority of financiers will call you to ask further questions during their loan assessment. At each of these opportunities to speak with potential lenders, you can solidify their impression of you as a competent business manager, by giving prompt and accurate answers while being polite and professional.
 
A STRONG OPENER
 
You’ll never get a second chance to make a first impression when meeting with potential lenders. Your personal presentation is a major contributor to this, so the best option is to look the part by wearing business attire. Secondly, be punctual for your appointment – it shows respect for the time of the person you’re meeting with and demonstrates that you’re well organised.
 
While meeting a financier for the first time might be a little daunting, you can rest assured that it’s in their interests to provide you with a loan – hence, don’t be intimidated by any pretence of exaggerated selectiveness. Increase your confidence through preparation and focus your discussion on educating the lender about your business, including discussions on your experience, qualifications, management and financial information. They’ll also want to hear about the direction in which you plan to take your business and how you expect your industry to progress in coming years. 
 
KNOW YOUR GAME
 
If you’re going to gain a lender’s trust, you need to be believable and convincing. To do this you must have a thorough knowledge of your business and your industry. Here are some standard questions you can expect to be asked when applying for most types of business loans:

  • What size of loan does your business need and how was this amount calculated?
  • What will the loan be used for?
  • What loan term would you ideally prefer?
  • What revenue will be generated through the use of the loan?
  • What loan repayments does your business anticipate being able to meet?
  • Have you ever defaulted on a loan? If so, is there a suitable explanation?

 LINING UP YOUR PITCH
 
While in-person meetings with lenders are very important, the package of written material that you provide to them will from then on be their principal source of reference. It will be used to analyse your business both financially and qualitatively. Taking the time to write a well prepared and presented package of written information gives your business a good head start in getting a loan approved.
 
1.     THE SCOREBOARD
Profit and loss and balance sheets are essential for any existing businesses applying for a loan. Ensure that these are up-to-date and correct, with interim financials provided if your existing accounts are already more than a few months old. Provide suitable commentary if there were any exceptional items or variations.
 
2.     YOUR GAME PLAN
Every business needs to plan its activities. While most of us consider writing a business plan a laborious task, when applying for a loan you should see this as the best opportunity to clearly and favourably convey the essential information about your business, including its future plans. It’s important to avoid any industry specific acronyms or terms, while making the document professional and easy to read.
 
3.     MARKETING ENDORSEMENTS
There’s nothing like third-party endorsements to boost your business’ profile, so be sure to include newspaper and magazine articles, client testimonials and references. Supporting publications, such as brochures, copies of ads and other promotional material can also help to boost the perceived professionalism of your company and highlight your focus on expansion.
 
4.     OVERTHROWS
It’s crucial not to exaggerate, as lenders need to feel confident in your business’ ability to meet the repayments on the proposed loan. Overly optimistic growth expectations or cashflow projections will be compared carefully to historical sales and financial performance. Importantly, don’t put any half truths in an application. Once discovered, they will unavoidably taint the other correct information and reduce your chances of gaining an approval.
 
5.     THE THIRD UMPIRE
It’s a surprise to many that most lending decisions aren’t made by the relationship manager you meet, instead they’re typically made by a loan assessor who has never met you or visited your business. While this may seem odd, it’s principally done to provide an impartial assessment of your application. Because of this process, the written material you provide has even greater importance.
 
MAKE YOUR BANK MANAGER PART OF THE TEAM
 
Lastly, make sure that you share your enthusiasm and vision for your business with your financier. If you can get them excited about the prospects for your business, they’re more likely to go that extra mile for you. Ask their advice and let them know your long term vision for your business, while giving them an insight into the effort and commitment it’s taken to get this far. Build your relationship with them so that when the time comes for the assessment of your application, they’ll be on board and have a desire to see your business succeed.


To secure funding, your business plan should include:

 

  • A business overview that outlines the business name, address, shareholders, industry, history, corporate structure, number of employees and current business assets (such as IP, patents etc). The aim is to give your potential financier a quick profile of your business.
  • Outline the experience and qualification of the business’ owners and the senior managers, including their industry background, expertise and professional achievements, establishing your business as a low-risk customer.
  • Give an overview what sort of customers your business sells to and whether it’s a manufacturer, wholesaler or retailer. Be sure to detail the ways in which your product meets your clients’ needs, clearly illustrating your unique points of difference.
  • List details and history of the major suppliers your business uses, outlining available alternatives if a particular supplier is unable to meet your future orders.
  • Detail the amount of finance you business will need, what it will be used for and how long it will take to repay.
  • Draw up a cash-flow projection outlining sales, income, business operating expenses, marketing costs and working capital requirements over the next three years. The key is to make them realistic, with support from historical financials, your marketing plan and forward orders.
  • Outline the security you are willing to provide as collateral, such as personal guarantees, real estate security or a charge over your business.
  • Identify industry or company specific risks that may affect your business, illustrating to potential lenders that you have well thought through contingencies in case these occur.
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