Requesting a Commercial Loan
How to Prepare a Business Loan Request for Your Bank
Most owners of small businesses believe that banks only
lend money to companies that don’t need it. This is
not true.
However, what is true is that bankers and the banks they represent will not
typically make an effort to understand a business when an owner has not made
a concerted effort to explain, in an organized and concise manner:
- The company’s business.
- What it will do with the money it wants to borrow.
- How it intends to repay any borrowed funds.
The following hints will help any small business owner ensure
that a banker sees their business in the best possible light.
Rule #1 For The Banker: "Know Your Customer"
The first rule of every banker is "Know your customer." This
means that before a bank can make a loan; the bank must have
an in-depth understanding of the business, including its history,
its future, its products, its customers, its suppliers and
its owners. The company’s business plan will normally
include these topics.
For smaller business, the bank will rarely distinguish between a company and
its owner. This means that the bank will want to understand the personal financial
circumstances of the owner, including the details of the owner’s net
worth and cash flow, just as the bank needs to understand the finances of the
business. The bank will also want to understand the owner’s character.
The bank will want to examine the owner’s personal credit history on
the premise that the owner will manage the company’s debt similar to
the way he manages his personal debt. Also, personal guarantees will always
be required. A bank will never consider taking on the risk of lending money
to a small business whose owner will not accept the same risk.
Helpful Business Plan Tips
Following are some helpful tips to make a loan request
package stand above the crowd:
- The package must be well organized.
- The package must be complete. Requesting additional information
is time consuming for both the bank and borrower.
- Make it easy for the bank to understand the business.
- Carefully explain how the borrowed funds will be used.
- Carefully explain and document how the funds will be repaid.
- Any required forms should be neatly and completely filled
out.
- Be prepared to offer the bank a lien on all of the company’s
assets.
Bankers Also Need To Know
To ensure that you help make the bankers life easier, consider including the
following supporting documents in your loan request:
- 2-3 years company financial statements. Ensure they tie
in to your bank account activity!
- 2-3 years company tax returns.
- Latest accounts receivable aging (if applicable).
- Latest accounts payable aging.
- List of 5-10 largest customers. Indicate each customer’s
percent of total sales if over 5%. Not applicable to retail
businesses like restaurants or shops.
- Personal financial statement of owner(s).
- 2-3 years personal tax returns of owner(s).
In Conclusion . . .
A business plan is the company’s plan for the future.
The bank will want to know if the company intends to grow and
how it will achieve its growth objectives. The bank will want
to know how the company will compete. The bank will want to
know how the company will function in bad times. Who will manage
the business in the event of death or illness? Be prepared
with the answers to the banker’s most likely questions
and you have increased your chances of raising banking financing.
Business planning 4
you is
the world’s largest business plan database and helps
you prepare a business plan for presenting to a bank or any
other potential financier.
We supply industry relevant wording and also free spreadsheets
that enable you to set out your financial forecasts.
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