The first thing a banker will do when considering your loan request is look at your business plan to see if your business model is still viable. As such, this is a perfect time to review and update your business plan and pre-empt any questions or issues that might arise. Specifically, your banker will consider the following:
- Is there still a demand for your products or services?
- Have market shifts made your company's competitive advantage obsolete?
- Can innovation save it?
By being well prepared, you’ll show that you’re committed to your business and have the skills, knowledge and confidence to achieve your goals.
You can use BDC’s free business plan template to guide you as you write your plan.
2. Are you taking action?
Too many companies go into hibernation when times are tough. As you rework your business plan, include these steps to help show the proactive actions you’re taking to turn around your business.
Businesses facing more serious difficulties should provide a restructuring plan. More detailed than a financial analysis, it includes measures to rectify an unprofitable position. The plan can present refinancing as one way to re-establish positive working capital by improving the terms and conditions of your current loans. Restructuring can include the sale of non-essential assets and inventory, which may generate additional one-time revenue.
A restructuring plan performs the same function as a business plan and must therefore serve as a guide for continuing operations. Like a financial forecast, it will be more convincing if it contains input from outside experts who can help you with what can be a complex process.
3. How will your project impact the business?
Next, your banker will consider the project itself to assess its viability. Specifically, your banker will look at whether the project is the right decision for this company, whether it contributes to its profitable growth in the years to come, and whether the project will be profitable.
You’ll want to back your claims with analysis of market opportunity and financial projections.
4. Will you be able to repay the loan?
To obtain financing, you must prove your repayment ability, particularly if your company is in difficulty. Your earnings forecast should be conservative to avoid giving the lender any cause for concern. Before any new loan is approved, the financial institution will double-check your business credit and capacity with either Equifax or TransUnion.
Your chances of obtaining a loan are greater if you have:
- good credit history by always fulfilling the repayment conditions on your previous loans
- credible financial forecast
- an honest and courteous relationship with your account manager
Bankers will also want to see that you are ready to share the risk with them and willing to commit to the project by pledging some type of collateral to secure the loan.
5. Have you done your due diligence?
How thoroughly have you researched your project? For example, if you are purchasing a building, did you consider all potential locations? Did you negotiate effectively? Would it be better to rent the building than to buy it? What will be the payback for your business from this investment?
6. Does management have what it takes?
Your banker will look at the way your business is being run to make sure it has the ability to not just survive these difficult times, but thrive once the crisis is over.
Does management have a plan?
The absence of a plan speaks volumes, but the nature of the plan sends a message as well. Is it merely a survival strategy, or is it a longer-term vision that positions the company for the eventual economic recovery? This often distinguishes well-managed companies from poorly managed ones.
How committed does management seem to be?
When ownership and management are not the same, how are they working together? Is ownership ready to man the battle stations or jump ship?
Bankers are completely dependent on the managers of their client companies. When your business is facing headwinds, they are spending more time to understand what kind of manager you are and what potential you have given your business.