Applying For a Loan?

5 Aug 2022 | Biz Finances

How to Prepare for Your Best Chance of Approval

 “Growth is never by mere chance; it is the result of forces working together.”– James Cash Penney, JCPenney founder

It takes money to make money, so the saying goes. Whether it’s for new equipment, expansion, or a new product line, at some point business owners will face the inevitable need for acquiring a loan.

But how you approach the application process matters, and similar to any business endeavour, you need to put some thought into it, and a plan. These tips will help you be prepared and on solid ground for the best chance of approval.

What Do Lenders Look For?

First and foremost, they want to understand your business the way you do. Beyond your hopes and ideas, they need an explanation of how your business works, and your plans for the future.

Not sure where to start? We’ve got you covered. The key components of a successful business loan application include the details of the following:

  • Your ‘Why’. Describe your motivation for why you are in business, and what you’re aiming for. Include your Vision Statement for what you want with your business. This will provide the foundation for your business strategy.
  • The Purpose. Clearly outline what the funding will be for, the reason for the application, and the improvements the loan will make to your business.
  • Your Competency. Lenders need confidence in your capability, experience and skills – and that of your team. Be ready to describe your technology, business processes, staff, and plans for continual improvement and upgrades. Read our blog How to Build an Effective Management System for ideas.
  • Your Financial Standing. Lenders would want to see how your business is performing financially. Provide them with management reports (get in touch to let us help you with that) and also describe how your numbers compare to previous years. Also be prepared to provide details of your personal financial standing, such as your credit rating and history of repaying personal debt.
  • Your Financial Forecast. A 12-month projection is commonly requested. You also need to have a ‘plan B’ if things don’t go as planned. Putting in the thought behind the numbers is a worthwhile exercise in itself. BWMD can help you to create your budgets and forecasts.

Putting it all together is the next step. The professional presentation of this information should ideally be a well-formatted document that is easy for the lender to read, without having to navigate 20 pages in order to find the important details. Once you have this document created, it’s easy to update it to use again, if needed.  

Other Important Considerations

Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion.” – Jack Welch, former chairman and CEO of General Electric

Now that you’ve documented the key components of your application, what else might influence the decision of a lender?

  • Your track record as a business owner is just as important as your future plans, which is why establishing good habits early can make all the difference to your success. You’ll need to show a history of being responsible with your money, and running your business well without reckless behaviour. Be sure to read our blog 10 tips to Improve Your Habits and Business.
  • Having a governance process reassures lenders that they can trust you to uphold your repayment obligations. Working with a team of professionals such as accountants, a lawyer and industry advisors demonstrates your compliance and commitment to investing in support to not only keep ‘the man’ happy, but be a responsible business owner.
  • Your character Cash flow is important, but so are your behaviour, experience, skill-set and leadership, which complete the package of your loan application. They’ll assess things like your ability to articulate your cash flow forecast, and your passion for the business.

Funding for Success

Completing these steps can make your loan application more likely to succeed. Formulating a loan application plan will not only reassure lenders, but also give you a solid sense of your business and a clear path to realising your dream lifestyle.

Need help with putting a loan application plan together? Get in touch with us so that we can help you achieve the best chance of approval.