How to get bank financing - preparation

Small businesses are important to financial institutions and they want to see entrepreneurs succeed.

It might not be as hard as you think to obtain the funds you need for business growth.

Banks want to help you find the right banking solution for your needs. Small businesses are important to financial institutions and they want to see entrepreneurs succeed. All you need to do is understand what banks typically look for in an application for financing so you can enter the process well prepared.

Increase your chances of financing success and help the bank say ‘yes’ to your request with these suggestions for improving your application.

Complete a business plan

The vision for your business may be clear in your head but your banker will want to see it on paper.

Spend time to complete a basic business plan. It should describe your:

  • Vision and strategy.
  • Goals and objectives.
  • Products or services.
  • Competition.
  • Management team and employees.
  • Advisors and mentors.
  • The amount of money you seek and how you intend to use those funds.

It should also include projected financial statements (income statement, cash flow and balance sheet) using conservative future estimates for revenue, expenses and profit.

Be prepared to answer specific questions about your plan. The more information you can provide to your business banker, the more they’ll be able to assist you.

Prepare your financial statements

You also need to ensure that your financial statements give an accurate picture of your business and your personal finances. That includes a personal statement of net worth, as well as your business balance sheet and income statements.

If you’re purchasing an existing business, or expanding your business, you’ll need to supply historical financial statements and tax returns for the business.

Ensure your personal finances are in order

The credit worthiness of the business and its ability to repay the loan are important, but this also holds true for you – the business owner. Therefore, it’s also vital to make sure your personal finances are orderly. Ask yourself:

  • Are your personal credit card balances always close to their limits?
  • Do you have any unpaid loans?
  • Are you only paying the minimums?

The sooner you can get your personal debt in order, the better position you’ll be in to obtain business financing.

Look at your credit rating

If your business has two or more years of financial history, it may be eligible for financing without a personal guarantee. If not, the bank may factor in your personal credit history as part of the application.

It’s good practice to check your personal credit rating before applying for bank financing. Checking your credit report annually can also help to detect identity theft.

Major credit bureaus in Canada include Equifax and TransUnion – and for a small fee you can instantly download a copy of your personal credit report and the lending ‘score’ used by some banks to assess your credit worthiness.

Commercial credit reports on your existing business are available from Equifax, TransUnion and D&B.

Speak with your accountant

Before you apply for financing, it may be a good idea to have your accountant review your statements. An accountant can:

  • Provide insights into areas of your business finances that you may have overlooked.
  • Help you anticipate questions you may be asked.

Consider collateral

Depending on the purpose of the funds being requested, the bank may want you to offer some personal collateral to help secure:

  • A loan.
  • A line of credit.
  • An overdraft account.
  • A commercial credit card.

Collateral may include personal or investment assets. Consider your comfort level regarding personal security and be prepared to discuss it.

Apply early

Most financial institutions can process your credit application in very little time, but it never hurts to put in your application to the bank long before you need the money.

It’s important to allow enough time to prepare a thorough credit application, meet with your small business banker and respond to any requests for additional information or paperwork.

Be well prepared for your loan application interview

Make sure you present yourself in a positive and professional manner at the loan application interview. Be ready to:

  • Answer a variety of questions about your business plan.
  • Back up all of your loan application claims with facts.

Remember that you’re selling yourself

You’re essentially selling your confidence in your business plan, along with your ability to pay back the loan. Ensure you clearly communicate:

  • How much money you need.
  • What you intend to use the money for.
  • How your business loan will be allocated – for example, will it be used for office equipment, vehicles, or to lease a premise.

Have your repayment plan prepared and include it with your documentation.

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