Most businesses rely on banks for funding. Without it, they would be unable to trade. One of the most difficult and sometimes traumatic tasks a business owner undertakes is applying to a bank for funding.
This article will help you understand and apply the best approach which will ultimately give you a superior chance of securing the funding you require.
For established businesses, you should have the track record and relationship with your bank manager to know exactly how to apply for funding and what your bank will require from you.
This article is therefore aimed at start up and inexperienced business owners who may be seeking funding for the first time or have been declined and wish to re-apply.
Let’s begin…
Whilst it may appear strange, it’s important to set a few ground rules and ensure you have the correct mindset to approach the bank.
Despite what you read or hear, banks are very fair. Mistakes were made at board level and not by the person you will be meeting. These managers are trying to serve you and also earn revenue for the bank. They have a duty to protect the bank’s money. They don’t make a decision. They send your application with their report to their lending team. The lending team reads your plan and the bank manager’s report, making a lending decision based on the facts presented. They won’t meet you, so you need to impress the bank manager and demonstrate you are of good character to lend money to.
A logical approach is required here, rather than emotional. Banks can only judge a proposition based on facts, not feelings. No matter how important this loan is, you must also remember that the foundation of your case must be logical.
Gathering the facts
For most applications, especially when you are new to the bank, a business plan will be required. Please refer to my previous article on writing a business plan.
The more data you provide a bank to prove you are worth backing, the more likely you will receive the funding. If you require business premises, then there are numerous costs associated with the building such as rent, rates, heating, lighting, gas and insurance. Knowing this, make sure you obtain written quotes for each of these costs so that you can use these to support your projections. Some business owners guess the costs. Think about it, how credible would you look if a bank manager asked to see the quotes behind your figures and you couldn’t supply them. On the flip side, also think how impressed they would be when you produced the relevant quotations.
For each cost you should be able to obtain a quotation or provide evidence that your figures are accurate.
If you are renting a unit, then provide photographs. Draw up simple plans so the manager understands how you intend to transform the place into your business. Of course, ensure you provide costings. This is important as so many applications fail because costings are way out. Worse still, you are granted the funding and find that you have made errors in your costings which will mean you have insufficient funds to complete the project. This takes time, but it’s worth it.
So, you’ve gathered building costs, quotes from suppliers and all of this is neatly wrapped into a business plan. What else is there?
Obtain professional help
Ideally, before you present your plan to the bank, it’s worth running it by an accountant or business adviser. There are many local agencies backed by Government funding who offer free services so it’s worth checking them out. If you don’t know them, then make an appointment with your bank manager to discuss your business. At this meeting you are not presenting your plan. You are on a fact-finding mission. Tell the bank manager of your intentions to apply to the bank for funding but at the moment you are gathering evidence and seeking advice. Ask for recommendations on accountants and the local business growth agency. The bank manager should be able to provide you with all of this information.
Whilst with the manager, ask for a quote(s) on the funding you require including arrangement fees so that you can include these accurate figures in your plan. The bank manager will remember you have taken the trouble to gather the data.
You now have the data to approach accountants to discuss your plans and see what services they can offer you. Remember to obtain a quote! Also you may find the local enterprise agency has a wealth of free help. Use it.
Developing your story…
You’ve now received excellent help. You’ve also gathered the data for your business plan so that you can accurately complete costings and projections, which should prove your business is viable. What else is there to do?
I began this article advising that you need facts and logic to present to the bank. You’ve covered the business from a numbers perspective. Let’s now take a look at the history and develop your story.
If you are new to business, what is your background? Where have you worked and what skills have you learned on your journey so far? What was the thinking behind you wanting to own a business? Was there a defining moment? What happened after this? Who did you meet etc.
This is your story. This brings the emotion and logic together. This explains and confirms that you have the necessary industry knowledge, experience, skills and contacts to make this business successful. If you are opening a business where you don’t have all of these attributes, then your story must be very strong. Who have you talked to in the industry? If your business serves a local market, have you travelled outside of this market and talked to other business owners who are serving their local markets with the same business model? If not, it’s a good idea. They may tell you so many stories of mistakes they made and how to avoid them.
It may be you are going into partnership. If so, you need to define your roles so that it’s clear who runs each part of the business and how your skills complement each other. With partnerships, it’s worth seeing a solicitor to write up a partnership agreement. Even the best of friends have disagreements and major fallouts. You can’t afford that in business.
Think about the skills required to run the business. Do you require staff and if so how are you going to recruit and train them. Have you devised and written a training plan?
You’ve selected business premises. What’s the story about these? Why did you select these over others?
Looking into the future…
What is the long term goal for your business? What will your business look like in five years? What are your annual sales projections, how many staff will you employ, what other products and/or services will you offer?
All of this forms part of your story. In essence you are saying where you’ve been, what you’ve done, what you intend to do now and what all of this change will look like in the future. It’s your past, present and future rolled into a story. You need to know this story and be able to articulate it in short or long form with passion. It should be easy to achieve because the story is true.
Quick summary
You are now ready to apply to a bank for funding. You have a great story supported by factual data contained in a business plan. You’ve already spoken to the bank and other advisers and therefore have a strong case to move forward and meet with the bank manager again to present your case. This time you are fully armed. Present your story, how much you are asking of the bank, how much you can personally put into the venture and the reasons why you consider the business will work and can therefore repay the funding.
Presenting a viable, well thought out proposition will significantly increase your chances of success. Impressing the bank manager will ensure they are on your side. They can comment on your level of professionalism and attention to detail. Their report can make a huge difference especially in marginal cases where their opinion of the applicant can sway a decision.
You now have the tools and the mindset to successfully apply for funding from a bank. Good luck.
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