What the banks look for

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Banks look at five main areas when assessing loan applications:

1. BACKGROUND/MANAGEMENT SKILLS:
  • Does the applicant have the relevant technical qualifications?
  • Is the business owner managed?
  • What does the entrepreneur’s credit record look like?
  • Are there management, financial, marketing skills or access to these skills?
  • What is the entrepreneur’s current income and level of drawing from the business?
  • What assets does he/she have?
  • What is the owner’s contribution to the business and the source thereof?
2. ENVIRONMENT:
  • What industry will the business operate in?
  • Who are the suppliers?
  • What is the competition like?
  • Are there barriers to entry?
  • Is the business seasonal?
  • Where is it located?
  • Who and where business clients are
3. FINANCIALS:
  • Historic info if it is an existing business
  • The applicant’s own means in the business
  • Equity, outside borrowings, liquidity
  • How profitable is the business(analysing debtors and creditor lists)?
  • Future projections – Is the cash flow forecast based on realistic assumptions? How were the figures derived? Are expenses understated and sales overstated taking into account similar businesses? Is the business viable? Is there cash available until the business reaches breakeven i.e. a margin of safety?
4. NEEDS:
  • Is the request in line with the requirements?
  • Is the request matched with the correct product i.e. long-term debt not secured by short-term finance?
5. SECURITY:
  • Is there a second source of repayment to hedge this risk?
  • What does the entrepreneur have to offer?
  • What security is available – the type and value?

* For more on financing your startup look out for the October/November 2011 issue of Your Business Magazine in shops from October 10.


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