A business loan application is like a job interview of sorts. The bank or financial institution may not know anything about your firm when you begin the process. By the end of the application process and a series of meetings, you hope that they will enthusiastically endorse a loan.
Getting from square one to loan approval is a structured process for any loan provider; there will be application forms to complete, and ultimately a long set of criteria that your firm must meet.
However, some of these requirements are subjective. A judgement is made by the bank or financial institution employee based upon how your company presents itself throughout the process, be it via the written word, an online presentation, or face-to-face meetings.
In this article we’ll look at ways that you can present your company favourably when seeking finance, to improve your odds of successfully being approved for a secured business loan.
How to present your company favourably:
Exude financial literacy
Financial literacy is a phrase that describes how comfortable you are when understanding and talking about financial concepts.
Bank employees will naturally have a high level of financial literacy from their day-to-day job. Unless you are the Finance Director or Chief Financial Officer of your company, you may not have gained this level of literacy through your daily tasks.
This is an issue because they will trust you and your plans if you can demonstrate that you possess financial literacy. Financial literacy isn’t just about having a way with words, it’s about having wisdom and experience – knowing how to avoid amateur mistakes and accounting errors that could otherwise undermine your application. The more an institution trusts your personal financial skills, the more they will trust the forecasts and statements of financial position that you may have attached with your application.
To improve financial literacy, consider reading books such as How to Read the Financial Pages by Michael Brett, The Joy of Accounting by Peter Frampton or Accounts Demystified by Anthony Rice.
Only present credible plans
When discussing the future of their business, owners can sometimes paint a glorious 3–10-year picture with aspirational goals and a transformational financial impact.
This won’t’ resonate with lenders. Lenders receive a return in the event that your company continues to make a profit before interest, also known as EBIT (Earnings Before Interest and Tax).
They don’t need your company to shoot for the moon – to be encouraged by the sound of your future.
In fact, the contrary can be true. If your business model sounds like an ‘all-out’ gamble on a risky business strategy in the hope of hitting the big league, it could even put off a lender.
Therefore, keep your plans simple, short-to-medium term and credible. Aim to convince the lender that in most outcomes, your business will have sufficient free cash flows to repay interest and capital in accordance with agreed timelines.
In summary, build your financial literacy skills through books or other resources to the point where you feel very at ease when talking about your financial performance to date and your cash flow projections for the future.
Then, use this wisdom to only present plans that aim to achieve a sensible return in many cases, rather than a high return in a minority of cases.
This way, you will gain the trust of the bank clerk and appeal to the risk profile that they are looking for.