What Banks Need To Know

Looking to invest more money into your growing business?  Need to speak to a lender but not sure where to start or what you’ll need?

Bank Picture

We have always found that, if you can answer the questions the bank (read Credit Manager) is likely to raise before they raise them, then you’re in a pretty good spot.

Here are some points to consider and information to collate before approaching your lender:

  • Don’t expect them to know about your business.  Provide history about where the business has grown from and what the future holds for the business.  This can include when it was established, visions and goals, succession plans, key staff members qualifications and experience, key relationships with advisors etc.
  • Include a one page Business plan.  This is one of the most valuable activities you can do.  It will help to show your direction and acts as a roadmap for the future.  Lenders will only risk their time and money if they are convinced your business will be successful.
  • Paint a picture –Have a structure diagram, what seems obvious to you may not be to someone else.
  • Develop a marketing plan.  Every business is different so use this to your advantage and market why your business deserves the money over your competitors.  Sell to the bank like you would sell to your customers.  Good marketing helps customers understand  why your offering is better then, or differentiates from the competition.
  • Be clear on the purpose of the borrowing, the borrowing entity, the amount required and when and how it will be repaid.  Don’t leave the lender wondering why.
  • Prove you have knowledge about your industry and your competitors.
  • Have your taxation affairs up-to-date and in order.  Provide last year’s financials including depreciation schedules, last year’s tax returns, a current profit and loss, a current balance sheet and the ATO’s integrated client and income tax account.  Point out all other borrowings and the security against them.  Lenders will feel comfort in knowing you take your financial affairs seriously.
  • Provide them with the key ratios of your business e.g. Asset turnover, gross margin, overhead ratio, ROI, debtors turnover and inventory turnover.
  • Prepare projected cash flow scenarios (poor, medium and best case) based on the money being borrowed.  Be clear on what the outcome of borrowing the money would mean for your business.  An understanding of why you want to borrow is only a small aspect in the process, what happens after you’re approved is just as important.
  • Have all the information available before meeting with lenders, this will speed up the process.

By putting in a little extra effort to ensure you have provided the correct information the more likely the lender will be to take you seriously, after all you’ve shown them how serious you are about your business.

Take your accountant to the meeting, this will instil comfort for the lender that your advisor supports you and the figures presented are realistic.  They can also often have a bit to add when negotiating with the bank on terms, conditions and “the rules” under which the bank lends money.

Given the many different facets of borrowings, be clear on mitigating the risks to the bank, this will provide them with comfort and confidence in lending you the necessary funds.  Lenders are more likely to lend to a good manager in a bad industry than a bad manager in a good industry!

There are many types of borrowings and unfortunately a one size fits all bank proposal doesn’t exist!  If you need help putting your bank proposal together please be in touch.  Given our broad base of clients and relationships with the banks we have the experience and understanding required to give you and your business the best chance when you’re needing extra funds to build your business.

One last thing to consider is taking the proposal around a number of financial institutions – often, different banks have differing appetites for lending to certain industries/sectors.  By going to a few of them, you will be able to more accurately gauge who is really interested and who is “going through the motions”.

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