There are many options for getting the funding to launch or expand a business, and the criteria for each lender will vary. However, there are some fundamental elements that all banks and lenders will look for when assessing your loan application. Here are 7 basic loan requirements and how you can prepare your business meet those requirements.
1. Prepare for questions
Each bank and lender will have slightly different questions and focus. However, there are some questions that every lender will ask (they might just use different words). These include: Why did you decide to apply for this loan with us? (Wrong answer would be ‘because everyone else has turned us away’). How will the funds be used? (Right answer - to fund a new piece of equipment or a new product development, wrong answer is to fund my holiday). What types of assets will be purchased and who are the intended suppliers? This last one they want to know so that they can assess their risk, to determine if the asset is going to hold its value over the duration of the loan and whether it is the sort of asset that could be liquidated if they needed to repossess it. Do you have any other business debts and if so with who? Again, this is about risk, they want to know if you need to manage other loans and how that will impact your ability to pay theirs.
2. Bank Statements Ready
They will always want copies of bank statements. Make sure you download a copy and have these ready. Not only does this save time when processing your application, but it shows the bank that you are prepared and organised.
3. Know your credit scores
Banks will check, so you should know beforehand what your credit score is. You need to be prepared if you have a lower credit score that you may be rejected or there may be extra requirements and conditions placed on the loan. Knowing your position prior can help you position yourself and understand what bargaining power you have.
4. Find Your Tax Returns
Banks will want to see your individual tax returns if you are a sole trader, or if you are a company they will want to see the company tax returns. Therefore make sure you have completed the most recent tax returns and that you have the previous ones on hand to provide them with a copy.
5. Time In Business
You need to do your time. When such a large percentage of businesses fail within the first few years there is much higher scrutiny placed on start ups. Therefore if you have done your time in your business and have a strong track record you will be in a much better place. If you are a startup you can still get funding, particularly if you have run a similar business in the past or if you have a skill or expertise that your business relies on and you have many years experience.
6. Update Your Balance Sheet
Having good, up to date and accurate books is important. Ensure that your balance sheet is up to date. This will give the bank an accurate picture of your current position, but it will also show that you are organised with your books and on top of your financials.
7. Profit and Loss Statements
Your bank will want to see your profit and loss statements. This is a great way of showing year on year growth and even quarter on quarter depending on how quickly you are growing. This allows the bank to see the overall health of the business and see the outgoings you are committed to, and how much is left over to fund their repayments.
Do you need help with application?
If you are looking to apply for a loan, make sure you have a chat to your accountant first. We are experts in helping our clients with relationship management with Bank Managers and Lenders, with relationships across all major banks we are only too happy to help you navigate this relationship. Speak to our team if you need assistance.