Standard Chartered Bank
Is your company bankable? In other words would a bank lend money to your business? In this segment of ‘Money Matters’ we take a look at what goes through a typical banker’s head when he/she makes a decision on whether or not to recommend an approval.
INFORMATION, INFORMATION, INFORMATION
Would you lend your own money to a stranger? Probably not! The more we know, the less we fear. This is why when you approach a bank for a business loan you have to be well prepared in terms of giving them as much information as they need to arrive at a positive decision. So what do they need?
No, these are not the same as your bank account statements that you keep sometimes in your car, bedroom, or dining table. What they want are profit and loss accounts, balance sheets and projected cash flow statements and usually covering the past three years. It is essentially your company’s ‘report card’. And like a report card, bankers can tell whether this company is ‘Grade A’ or ‘Grade I spend more time on the golf course’.
WHAT IS THE MONEY FOR?
“For my business !” Yes, but what exactly does that mean and how much? You have to explain in detail the plans you have for the facility (loans) you are applying for.
Is it for day to day running costs of the company or to buy equipment and property? This is where a banker can get a good feel about how much the business owner knows about the business and what direction he wants to take it. For example they also look at how much the business owner takes out from the company. An MTV Crib lifestyle with mansions, luxury cars, and expensive watches is great if the company is making large profits.
But if a loss-making company’s sole purpose for existence is to feed that kind of lifestyle then it might make a banker a tad nervous. It’s akin to the feeling you get where
you lent your cousin, uncle or buddy money because he said he can’t pay his kid’s school
fees and the next minute he has the latest European luxury 4×4 sitting in his driveway.
SECURITY AND RISKS
This is the ‘break glass in emergency situation’ that bankers prefer. This usually comes in the form of cash deposits or property. In other words ‘tangible assets’. How much would depend on the factors discussed above. For example, if a company has an established track record and a leader in their industry, has strong financials and good prospects for future growth, the security level needed would not be as high as compared to a company with a short track record, weak financials and no prospects (would you lend your own money to them?).
Another important factor is whether your company is a ‘one-man show’ or are there contingencies in place should the main driver of the company (you) decide to leave. So do be careful in marketing yourself as the ‘main man’ of the company that can bring in sales, manage the operations and do the bookkeeping because even if you think you will be the next Steve Jobs, it is precisely of this uncertainty that can cause your banker to think twice about lending. To mitigate, focus the attention on your team; give your banker a breakdown of your potential successors/workforce, their qualifications, and their experience. Remember the banks are lending to your business and not to you!
Banks at the end of the day want to help businesses grow, especially if they feel that you as the business owner are in it for the long run and want to take your company to the next level. For a more productive and fruitful relationship, picking a bank that understands your business needs would be the right partner in your company’s growth. But like in any partnership it’s a two-way process where there needs to be a good exchange of information for it to blossom. So if you get what you want from the bank it is fair to say it means you understand what they are looking for and them likewise.
If however they turn you down, do not be disheartened but seek an explanation and try to understand why and how you can improve the business to make it ‘bankable’. Rome was not built in a day and many a successful businessman has failed in one way or another on their journey to success.
This article is for general information purposes only and while the information in it is believed to be reliable, it has not been independently verified by us. You are advised to exercise your own independent judgement with the contents in this article.