Business Owners - Improve your chances of obtaining a loan

Many businesses need loans from time to time, especially during the current Coronavirus crisis. Here we provide some brief thoughts on what you can do to improve your chances of securing funding.

Preparing properly is key to improving your chances of success. Try to put yourself in the shoes of the lender and make sure you can answer all the important questions they are likely to ask. You need to give them confidence that you are in control and taking all the appropriate actions to ensure your company will be successful, and ensure that the company will have sufficient resources to repay the loan within the timescales agreed. Some key points to think about:

  • You will need to provide up to date management accounts together with detailed financial projections. Prepare a well thought through commentary to accompany the numbers – the lender needs to understand your business, so you should explain the background of your company and why you require additional funds. Any lender needs confidence that the loan will be repaid, so clearly explain why you believe the business will be generating sufficient cash-flow to do so. It is clearly best if there is significant margin, i.e. extra cash-flow available to more than cover the required loan repayments, so there is less risk for the lender

  • Prepare a list of material assumptions for your financial model – a financial forecast is a pre- requisite, but it will help the lender significantly if you explain why you have made certain assumptions. The lender needs to know that you have thought it through carefully and that your assumptions appear reasonable

  • Attach a detailed cashflow projection, ideally with a Profit & Loss and Balance Sheet forecast. Normally the period of the projection should at least relate to the period of the loan you are seeking – see separate article for some hints and tips

  • Sensitivities – a lender will be more persuaded by your forecast if you carry out certain sensitivities on your “base case” scenario. The sensitivities will depend on the nature of the business and the circumstances. For instance, during the Coronavirus crisis, your base case might assume that your business reopens in three months, so a possible sensitivity might be changing three months to four, five or six months and see the impact on your financing requirement, or you may be projecting a return to pre-pandemic revenue levels three months after reopening, so a sensitivity might be to extend the recovery to four or five months

  • Banks normally require in the base case and sensitivity scenarios that the company can meet their funding requirements for both existing and new loans. A typical calculation banks would make is EBITDA/Sum of annual repayments which should be at least above 1.25x cover

Good luck to you, we hope that you secure the financing that you need and can return your business to profitability soon.

John Panczak MA (Cantab) ACA

If you need any help with these or any other business-related issues please get in touch

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