Approaching the Bank

For many small businesses and start-ups, money can be the one thing that stands in the way of starting. If crowdfunding and government grants aren’t going to work for you, it’s likely you’ll decide to take on the banks, and apply for a business loan – a process that can be incredibly nerve-wracking, especially during the credit-crunch. Banks want to lend businesses money – but only the best businesses, so follow our guide to putting together a winning loan application, and you’ll be on your way to success!

Before

Shop around for the best deals

You don’t have to bank with your existing bank – the one you use for your personal accounts! By shopping around, you can find the best deals, and pick the bank that will work best with, and for you.

Write a clear, concise (and brilliant!) business plan

If you’ve read our previous article, you should be fairly confident about this part! Make sure your plan shows how you can make a profit, as well as showing how the cash injection will help (and for what the money will be used!).

Financial documents

Unsurprisingly, the ‘figures’ are the most important part of your meeting: the bank will probably reject you if they don’t feel the numbers are good enough. Compile a financial package, including profit forecasts, a 5-year plan, the expected ROI on the loan, personal financial statement, 2-years tax returns for the company (and owners!), and a current year to date income statement.

Check your credit rating

Even though the bank will check your rating, it’s imperative that you know beforehand: it’s harder to get a loan with a bad credit rating. If you know what your rating is, you’ll be able to answer any questions about it.

Research the kind of questions you may be asked

If you roughly know what you’ll be asked, you can prepare in detail, and be ready to answer them: no one wants to be caught off guard.

Practice, practice, practice…

Go through your pitch until you know it! It shouldn’t sound scripted, so try to learn the main points, facts, and figures, rather than knowing it word for word. Aim for fluency, rather than memorizing it.

Approach in person

To book a meeting, go along to the branch in person, and speak to someone there. Choose a date that you know everyone can make, as cancelling an appointment gives a bad impression. If you’re applying to a larger firm, you may need to apply online, in which case double (and then triple!) check your application for spelling and grammar.

Be realistic

Don’t underestimate how much you need to borrow: returning to the bank and asking for more later on is not only expensive, but may make you look like you don’t know your business’ finances quite as well as you perhaps should. Don’t over-forecast revenues or undervalue costs you’ll incur, and similarly, include honest figures about how much you’ll need to live off.

During

Commitment and belief

You need to come across as 110% invested in your business. If you aren’t enthusiastic about your business, the bank manager will pick up on it, and may be less likely to approve your application.

Sell it

Not only do you need to sell your idea to the bank, you need to sell yourself. Banks won’t lend to people that they don’t have faith in, so make sure you come across confident, knowledgeable, and open.

Check the small print

Find out any hidden charges, and check how much the loan will cost in total, including interest, charges for setting it up, late payment penalties, and redemption penalties. Compare this overall figure to your repayment period, as well as what other banks could offer you.

What the bank will want to know

There are three key things that the bank will ask:
- how much money do you need?
- over what length of time can you repay it?
- can you secure the debt against any assets?
These questions will determine whether you get the loan, and what the interest rate will be. The bank will also want to know about you and the team, your business, your 5-year plan, and the business model.

Appearances count!

Dress and sound professional, and always be early: whatever you do, do not show up late.

Be open

If you’re looking for a long-term relationship, mention it. Bringing more business, like business/personal accounts, merchant and payroll services, and referring the bank to other businesses in the area, may work in your favour.  

After

Wait… and be patient!

It can often take around three to six months to hear back about a decision, so sit tight and cross your fingers. Work on any weak points in your business, and don’t endlessly call them.

Got your offer?

Congratulations… but don’t accept it straight away, no matter how tempting it is. You can try and constructively challenge the terms you’ve been offered, especially if you think they’re unreasonable. Be calm, and back up everything with facts and figures. Compare them to their competitors, who will often match, or lower a quote.

Got rejected?

It’s hard, but unfortunately it happens to a lot of people. Don’t let it drag you down, and instead work harder: find out where you went wrong, change it, and then re-apply! Ask an experienced mentor to help, for more confidence. You could always do research into other sources of money, like government grants, and venture capitalists.

Once your money’s sorted out, you can really focus on building a great business, and getting it out to your customers! For the next part in our series, we’ve got a brilliant guide to creating a remarkable brand: the lynchpin of every business, and because we know that every penny counts, we’ll be bringing you the ultimate ways to market on a tight budget.

Passed the bank loan application with flying colours? Or maybe you've had to rethink your approach? Either way, we'd love to hear your advice, tips and stories on how you approached the bank, so please do share with us on Twitter with #MOOStartupKit (and learn how your fellow loan-appliers got on too!)