Preparing a successful loan submission to a financial institution is an important task. Like your business plan, it will take time and effort, but it’s worth it. Follow the do’s and don’ts below and you’ll be well on your way.
DO’s
- Prepare a formal business plan consistent with industry norms and the economic environment. State your assumptions clearly.
- Check if your business plan is in line with industry risk assessment.
- Compile the required financial information – ask the bank manager and/or lending officer what is required and in what form.
- Assess projected profit-and-loss statements to ensure they satisfy minimum bank operating and gearing ratios. Again, ask the bank for these minimums.
- Assemble and emphasise all information that will prove the good relationship you or your business had with the bank:
1. Credit repayment records, on time and in accord with schedules
2. Your business’ profitability (or potential profitability) to the bank
3. Records about alternative financial sources which will be available if the bank declines (a little competition helps)
- Determine three scenarios of possible results of the business (best, worst and most likely).
- Conduct a well-planned and sharply focused initial informal meeting with the bank manager to outline your plans and what you need. This helps win the manager’s understanding and provides a guide to the bank’s requirements.
- Compare your plan with the bank’s requirements and correct it if there are any shortcomings, or add more information as needed.
- Make a formal application supported by a full business plan, financial statements, and other relevant supporting reports such as economic statements, business assets, valuations, and market assessment.
- Negotiate with the bank:
1. Nominate securities, borrowing structure and limits on personal guarantees.
2. Provide any additional required information.
3. Critically review the bank’s restrictions and monitoring conditions.
4. Pre-determine your own pricing assessment and seek to limit fees and interest rate to an acceptable level to both parties.
5. Compromise and agree to the proposed credit structure, but don’t forget to protect yourself in the event of a legal dispute.
- Examine carefully the loan guarantee and debenture documents to ensure that they fully and adequately represent your commercial requirements.
- Read, understand (and have your legal adviser see) the documents – then sign.
- Be familiar with and adhere to monitoring conditions and covenants.
- Apply the funds according to the actual business plan.
- Monitor the industry and economic environment, financial performance and security frequently, and compare with the business plan.
- If a deviation occurs, inform the bank of any changes in the business plan. This is most important because it gives the bank confidence in you.
- If you have to, renegotiate if your business requires a better deal. Make a case at any stage of the loan – the bank will listen.
- Maintain debt service requirements.
DON’Ts
- Submitting the application without a proper business plan
- Making a formal application without prior informal discussion
- Making a “half-baked” application (without information required by the bank)
- Making the bank staff call for information over and over again, and then not allowing the bank to consider its position
- Changing agreed conditions without strong reasons, and then doing so only by negotiation
- Attempting frequent changes in credit conditions before approval
- Misusing funds
- Disregarding credit restrictions or the objectives of the business plan
- Disregarding debt service monitoring (supply infrequent interim accounts with budget/actual variances)
- Attempting to interrupt, hamper, obscure or confuse the bank officer’s credit monitoring programs
- Giving unacceptable excuses for your underperformance. Be honest. Tell the bank exactly what the situation is and tell the bank how you’re (realistically) going to deal with the situation.
- Behaving erratically or angrily without knowing the bank officer’s responsibilities with regards to relationship management – banks aren’t obliged to be at your service exclusively.
For more related tips, consult the top banking professionals in Australia today.