The Secrets To Getting A Bank Loan Approved
Most of the bank finance assistance and loan requests are rejected, not because of the candidate's lack of necessary qualifications as it's popularly assumed, but because of the lack of preparation for the candidate's meeting with the bank officials. Here are 11 points to be kept in mind to have a successful attempt at obtaining a bank loan.
Cash Flow: Managing your capital that includes the creditors, debtors and stock, is very important in any business. Provide the bank with enough material that suggests you are efficient in managing your cash and the cash in your account is sufficient enough for covering the bank's interests. Understanding the flow of cash is the key to running a successful enterprise.
Outlook: Forecast the period of payback, the amount required, the risks and the return of the money to the bank. Communicate the same along with the figures giving the relationship between incomes, profits, balance sheets and cash invoices. It is also important to assure the bank about the possibilities of repayment.
Markets: Explain to the banks your views of the market. The catch here is not in predicting the outcomes precisely but in letting the bank know that you have a thought about what's going on in the markets and that a clear plan of action is considered. Focus about 20% of the efforts in explaining what happened in the past and about 80% on the forecast for the future.
Mix and Quality of Clients: The strength of your clients is directly proportional to the strength of your business and hence the ability to repay investors. So detail your clients by name, establishment, industry, contract length, etc.
Update: Giving the banks up to date information on the financial status and data management of the company is very essential. The information should be updated quarterly at the least and the information is to be split up into sub-categories like region, time, etc. The information should also include profit and balance statements, and organised cash flow. The updated information is useful to draw up budgets or forecasts.
Need for Liquidity: An important point to be remembered is that higher the liquidity, greater the returns generated on the assets. Hence it is important to show the banks the liquidity of your assets. It is also important to let the banks know about how quickly you get the hands on the cash and also about the cash that is caught up with the immovable assets.
Income: While communicating with the bank, use your financial definitions wisely. Gross profit, net profit, operating profit and EBITDA (earnings before interest tax, depreciation and amortisation) are the various terms that are more likely to be used for financial business analysis. The seasonality of your industry is also another important point to be discussed.
Competition: Discuss your performance in comparison to the performance of your competitors and let them know how much better you have fared than them. This discussion is very important as it gives the bank the impression that you are great at team management and that you know the business.
Activities: Divide the company affairs and activities into groups or departments and explain to him the efficiency and profitability of each activity. Also explain the strategy that these groups adopt.
Track Record: Provide the bank with accounts and data management reports for a 3 year period at the least. The banks derive confidence from a good management track report.
Equity, Debt and the Worksheet: Explain to the bank the extent of risks that you have to undertake versus the risks the bank takes. Knowledge of the market value of the assets and the debt details places you in a strong position on the status of the balance sheets and on the security details that is on the offer.
