Getting financing for your business during a financial crisis |
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6 questions your banker will ask during a financial crisis

It’s important to understand what bankers are looking for when considering financing your project.


While getting a business loan can be difficult anytime, it’s even harder when the economy slows down and credit tightens up.

Banks are more prudent when times are hard. The result is "by-the-book" policies that can be frustrating for entrepreneurs. They might not be as willing to overlook mistakes in your paperwork and might raise their requirements regarding certain ratios, for example.

To overcome these challenges, it’s important to understand what bankers are looking for and what they need to see from your business, especially if it’s under pressure because of difficult economic conditions. Here are six questions your banker will strongly consider when deciding whether or not to give you a loan during a financial crisis.

1. Is your business model still viable?

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. The Canada Business Network also offers a guide to writing your business plan as well as good examples of industry specific business plans.

2. Are you taking action?

Too many companies go into hibernation when times are tough. As you rework your business plan, consider including these steps to help show the proactive actions you’re taking to build market share:

  • Invest in operational efficiency to boost your productivity and cut waste
  • Carry out an acquisition or seal alliances with other companies to gain access to new markets
  • Diversify your business by growing your customer base and exploring export markets
  • Develop new products and services to keep up with new customer trends and widen your market

3. How will your project impact the business?

Next, your banker will consider the project itself to assess your 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. What is your investment and collateral?

Bankers will 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. Your banker will look for answers to the following questions.

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. In a tough economic climate, they are spending more time to understand what kind of manager you are and what potential you have given your business.

Tip: Create an advisory board

One way to reassure your banker about the strength of your management team is to create an advisory board—a group of trusted advisors that meets regularly to help you make better business decisions and develop a long-term vision for your business. They can be a great sounding board for your business. Unlike a formal board of directors, it has no decision-making powers and carries no legal liability.

A BDC study on advisory boards found that advisory boards produce huge benefits for small and medium-sized businesses, including substantial gains in sales and productivity.