What you should know before you apply for an SME bank loan

Borrowing from a bank is generally much cheaper than borrowing from other sources such as venture capitalists. Whether your SME company is attempting to establish bank credit for the first time or you are looking to increase your existing credit facility there are several things you can do to improve your chances of achieving your objectives.

Know your bank(s)

Banks that make your go-to list should be large enough to handle your needs, but small enough that your business is important to them. You should get to know the banks, their lending standards, the approval process and timing of, other companies in your industry they lend to, the health of the bank in general. 

Be prepared

Prior to approaching your target banks, prepare a list of important documents to give each bank. This will speed up the process and will also show that you are professional and well prepared. These documents should include but not be limited to the following:

(1)Three years financial statements either audited or reviewed.
(2)Three years tax filings.
(3)At least a one year forecast (3 years is better).
(4)Latest Accounts receivable and payable ageing.
(5)An executive summary (see below).

Do part of the bank’s work for them

Prepare a 3-4 page executive summary for the banks. This is your chance to tell your story in the best possible light. Sections should include the following:

(1)History and background.
(2)Product and/or service.
(3)Market discussion.
(4)Senior Management.
(5)Discussion of historical financial results.
(6)Discussion/explanation of forecasts.

This executive summary allows you to explain your forecasted growth, any problems that are evident, and most importantly, how the bank will be repaid. It will greatly increase your chances of obtaining your goals and allow you to drive the process.

Each bank has unique internal and market factors that govern how aggressive they will be in lending to SMEs. Some of these factors are:

Current quality of their loan portfolio. Banks with higher than average non-performing loans and loan loss provisions will obviously not be in a loan expansion mode.

The bank’s view of the local, regional and national economic conditions. Banks who view any one of these as in recession or close to a downturn will be either less aggressive in commercial lending or want very strict terms. The same applies to various industries. Banks may have a positive view of the economy but not of a particular industry. Make sure your industry is not negatively viewed.

Emphasis on lending opportunities other than commercial lending. Some banks concentrate, for example, on consumer lending, mortgage lending or lending to large companies. They may only offer commercial lending to SMEs as a supplement to their consumer lending programs and thus will not offer a wide array of commercial lending products or products that have attractive terms.

Thank you for visiting ReplayBusiness.com and keep an eye out for a new article.

Did you like this article?

Subscribe to ReplayBusiness to receive all new postings straight to your inbox!

Tell us what you think!

We truly encourage your participation!
Contact us:  http://www.replaybusiness.com/p/contact.html

This is how we all learn, share and acquire knowledge!

Follow us and retweet to your followers: https://twitter.com/ReplayBusiness
Replay Business © 2011 Costas Stabolas| Designed by Nowmysite.com