Having spent a number of years as a commercial banker with a global bank and now working in specialised finance, I thought I would write a short article on 5 things you should consider when applying for business funding to a bank. They may seem obvious, but can often be the reason why some get approved and others don’t. You want the banker to be on your side at the end of the day don’t you?
1. Remember it is a person reading your business plan: There are many resources available online and via consultants on how to generate a business plan, but what these resources do not take into consideration is that someone has to actually read and understand what the proposal is. Imagine that a bank manager gets hundreds of proposals every year across their desk and they will be under pressures such as time constraints to read and understand what you have written. This is not to say that you should make it informal or lacking in detail, but ensure that you remember that even though it makes perfect sense to you, the banker will never have seen your proposal before so keep it clear.
As an update to this point, banks are increasingly removing the authority from localised staff so keep in mind that the banker that you speak to will then…in many cases, have to then formalise and then submit the application to someone further up the chain in credit & risk. You want to have that person on your side and fighting your corner to get approval so don’t be afraid to ask them if they need clarification on any points…better for them to have the complete picture.
2. Always arrange a meeting. The best way to put a proposal to a bank is to make contact with the right person, ask in branch or via your accountant who would be the best person to speak to and try to arrange a meeting with that person. It is also a good idea to submit the business plan prior to the meeting. It will give the manager time to look over the proposal and most likely allow them to prepare pertinent questions around the proposition.
3. Be prepared. Although the business plan should have details on the market, forecasts, strategy, competitors and other key facts, 9 times out of 10 there will be something that the manager will pick up on and it is up to you to have the answers. If you don’t have the answers, be honest and don’t make them up, but the best solution is to be prepared. It will instil confidence in the manager that you know what you are talking about. (Also review the plan for grammar and spelling mistakes, it’s a minor thing but does count)
4. Keep an open mind. On many occasions, I met with clients and had a possible alternative solution to their funding requirement that they might not have thought about. This can often be met with resistance as the solution might involve a solution that you are unfamiliar with. It is best to examine all the possible angles as there is often not just one way of financing something. This has been heightened in recent times with traditional funding lines such as overdraft being reduced in availability. Products such as trade finance, asset finance and invoice finance are becoming more popular, primarily as they rely on funding against specific assets rather than generic security.
5. Keep it realistic. A banker is always looking to see what you are willing to commit to your proposal. It is not that they don’t want to help, but look at it from their perspective. If you asked for 100% funding, you are in essence asking the bank to take all the risk. On a simplistic level, you are suggesting that you don’t believe in your own plan enough to commit to it yourself. Also don’t ask for more than you need. Everyone would love to have a buffer zone when it comes to lending……extra money to cover wages or “just in case”. If you are going to include these factors in your request, make sure you justify them in your business plan. In all likelihood, even though they have never seen your business proposal before, they will have had one very similar to benchmark it against…there are very few plans that cannot be related in some shape or form to an existing business.
I hope that these points have been useful and if you have any questions or wish to share your experiences, I’d be more than happy to help and hear your thoughts.
Here are a few of my other related posts: