Whether you are trying to get a new business off the ground or endeavouring to bring an already flourishing business to the next level, you might see the appeal of arranging a bank loan. However, securing such a loan for business purposes can be much harder than for personal reasons.
For this reason, it is crucial that you prepare yourself well before approaching a bank to request a loan. In this article, we have compiled a list of questions that you may be asked before being approved for a business bank loan, so that you can prepare answers to all of them.
Why do you need a loan?
There are various potential reasons why you might seek a loan. Perhaps you are eager to purchase equipment or vehicles, refinance the company or ease its cash flow. Whatever the exact reason, the bank will need to know it, as it will affect what type of loan and rates are available.
In fact, it will be imperative for the bank to know in forensic detail. This situation will call on you to put together a watertight business plan for the bank loan. You should specify in this plan where the money will go and what returns you anticipate from the expenditure.
Can your business afford the sought-after loan?
What do banks require for a business loan? Reassurance of your ability to repay the loan ranks pretty highly on the list. In assessing this ability, however, the bank will want to know not only your firm’s current financial situation, but also how those finances are projected to fare in the future.
To help put cautious lenders at ease, you should try to borrow only what will be necessary for maintaining and growing the business.
Can you provide further reassurance?
Even after following the rest of the advice in this article, you might still struggle to tempt the lender into approving a loan for your business. This could be especially the case if your business is still relatively small and therefore has scarcely a track record to highlight.
However, you could further reassure a lender about your loan-repaying ability if you provide what is known as a director’s personal guarantee.
How good is your cash flow?
The health of your company’s cash flow is crucial to the long-term success of the company itself. Cash flow refers to both the money that enters the business and the money that goes out. If the former exceeds the latter, this is positive cash flow, while vice versa indicates negative cash flow.
One of our accountants can help you to present your financial figures in the right way. We can also further advise you if you get in touch for a free consultation.