Do you know what banks look for when you apply for a loan? Is it your turnover, your profitability, your growth projections, your cashflow or just the value of the security you can offer? And if a bank says no, what can you do?
Alan Miltz is a director of business advisory firm Pearl Finance Australia and the man whose company invented the algorithm that many of the leading banks use to assess your business financials when you apply for a loan. So he knows what he’s talking about.
“To avoid being seen by the banks as marginal, you must be able to clearly and convincingly articulate why your lending proposition must be supported by the bank,” he explains. “This isn’t just when you apply for a loan – it must be every time you communicate with your bank.”
He understands the pressures that small businesses are under, and has some valuable pointers for business owners thinking of approaching the bank for that critical loan. Here are his top 10 tips:
1. Explain your financials. Spreadsheets aren’t enough. Make sure your bank understands the business drivers reflected in your documentation.
2. Share your future. Talk to your bank about your business’ future. This communication builds trust, and encourages your bank to champion your company.
3. Focus your team on cash. Cashflow is king for the bank. This is a key part of their lending decision, so make sure it’s a key focus for you and your team too.
4. Borrow for growth, not wastage. This may sound obvious – but be clear about what you are borrowing for – and make sure it ties to your business plan.
5. Always give the bank an exit opportunity. Don’t back that bank into a corner. An exit opportunity is another confidence builder for the bank. If they know they can get out, they feel more like they won’t have to.