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.
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:
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.
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.
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:
The sooner you can get your personal debt in order, the better position you’ll be in to obtain business financing.
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.
Before you apply for financing, it may be a good idea to have your accountant review your statements. An accountant can:
Depending on the purpose of the funds being requested, the bank may want you to offer some personal collateral to help secure:
Collateral may include personal or investment assets. Consider your comfort level regarding personal security and be prepared to discuss it.
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.
Make sure you present yourself in a positive and professional manner at the loan application interview. Be ready to:
You’re essentially selling your confidence in your business plan, along with your ability to pay back the loan. Ensure you clearly communicate:
Have your repayment plan prepared and include it with your documentation.