When you apply for a bank loan or overdraft, you should take a step-by-step approach to make sure that you give your application the best chance of success.
Banks often have requirements checklists on their websites, or you can use this checklist as the basis for your application:
- Background - explain, in writing, the key details about your business, including ownership, management team (including its experience), history and growth development. You should also identify the most important influences on your business, including your main customers, key suppliers and major competition.
- Purpose - explain in detail why you want the loan or overdraft, including an indication of your aims and objectives. If you have had loans previously, explain what they enabled you to achieve.
- Risks - demonstrate that you know and understand the risks that might impact on your business, and show how you have taken steps to reduce their effect, as far as possible.
- Finance - explain who looks after your business' finance, outlining their experience and qualifications. Show that you have solid financial systems in place.
- Accounts - you'll need to provide financial data. Most banks will want to see annual accounts for the previous three years, as well as management accounts, budgets and forecasts. If you are a new business, or if you are moving to a new bank, you will need additional information such as previous bank statements and figures showing your personal financial situation.
- Amount - outline what funding you are seeking, including what it will be used for. If you are looking for an overdraft, make sure it takes into account your needs for the foreseeable future.
- Funding structure - the bank or your accountant will be able to help you decide the best type of finance. It is important to have the right kind of funding structure to cover both working capital and capital investments.
- Repayment - you need to be clear about how you are going to repay the borrowing. Be realistic about your business expectations and cashflow, and avoid being over-optimistic.
Banks will often require your loan or overdraft to be secured when borrowing larger amounts. This can include charges over property or the company's debtors, personal or third party guarantees, or government support.
Your accountants, solicitors or trade bodies can provide help in structuring your case, and the bank itself will probably be able to help with loan documentation. For information on finding professional advisers, see choose an accountant for your business and choose a solicitor for your business.