Applying for a Business Loan

The fact is that bank loans form the most important single source of funds for small businesses. In preparing a request for finance, it is essential that the applicant informs the bank as fully as possible on all matters. Not only is detailed information essential for the bank to be able to reach its decision but it may also have a bearing on the type of finance ultimately approved and the terms and conditions to apply.

The most important details that should be considered and presented to the bank in the application for a loan can be summarised as follows:
• The amount of funds required and the purpose of the borrowing.
• How the amount is assessed (include copies of quotations, etc if appropriate).
• Preferred repayment terms.
• Security offered for the loan.
• Projected profitability. In projecting profits allowance should be made for reasonable contingencies.
• Projected cash budget for the following 12 months and then years two and three as a total year not in individual months.
• The budget should include interest and principal repayments on the proposed loan.
• Details of all existing personal or business borrowings.
• The last three years balance sheets or statement of business assets and liabilities.
• The last three years profit and loss account or taxation returns.
• Dissection of debtors by age and amount owing.
• Dissection of creditors by age and amount owing.
• Basis of stock valuation.
• Details of the personal assets and liabilities of the owners/ directors.
• History of the business.
• Experience, qualifications etc of the owners/directors.

In a final statement, indicate that you have provided for unusual events and emergencies. For example: flood, droughts, industrial disputes or other events which are relevant to your business.

Whist the details above are essential elements in any finance application, it is important for you, the applicant to look at the total proposal and consider the following important points:
• How do you see the future of the business in say 3 or 5 years time?
• Will you set goals for yourself and your employees (are their job descriptions clearly defined)?
• How and when will these goals be achieved? Will you set time frames?
• How deeply have you researched the market in which you operate or intend to operate?
• Will you have a reliable management information system in place, to keep you up to date and informed as to progress, and the position of your business at all times?
• Have you considered a contingency plan to compensate for market changes, availability of stock, materials and other various external factors which may affect the operation of your business?

These are just a few of the matters on which a lender may seek clarification when you are submitting your proposal for finance.
It will help if the finance application is accompanied by a business plan.

The outcome of an application for bank finance can be dictated by how well the proposal is researched and how well it is presented.
Ultimately the applicant must be able to demonstrate that the proposition is a practical one and will be successful, that the business will be sufficiently profitable to service all borrowings and still have an adequate margin for taxation and owners' salary or drawings, and that the bank will have adequate security.

Finally an applicant should always discuss with, and seek input on, the application with their accountant before presenting to the bank.

Originally submitted by: Sam Shaw