Being well prepared before you apply for the loan will increase the probability of success with your application. Your loan application should demonstrate that you can organise your thoughts and ideas in writing and can support them with financial information.
Make sure you know what information is required. The key components of a loan application should include:
- Executive summary
- Statement of purpose
- Business plan
- Financial forecasts
- Historical business financial statements
- Personal information
There are a number of common mistakes that businesses make when preparing and applying for a loan. Make sure you understand what these are so you can try to avoid them.
It is extremely important that you meet personally with the lender and are prepared to discuss yourself, your business and your financial needs. This may well be the first step in developing an ongoing relationship that will foster future growth for your business.
Establish the expectations of the lender before you meet - research the institution’s website or contact them to ask for a checklist of the information that will be required.
In addition to the loan application package, be prepared to discuss certain aspects of your business, competitors and industry. Be prepared for the lender to look at relevant financial ratios and ask questions. Make sure these ratios on your forecasts are within the acceptable levels and that you understand what the ratios mean. Furthermore, a good presentation will include discussion on the sensitivity of the ability to repay the loan. This means you know where the risks in the forecast may be, and have thought about back-up plans in the event that activities don’t go according to plan.
If you are unsuccessful with your loan application, ask your bank why. This will help you understand how the bank views your application and may assist you in the future.