Although the following Question / Answers are not the only answer, they will give you an understanding of how you might approach a banker.
Remember, Bankers are risk adverse, their goal is to safeguard the banks funds, whilst earning an income from interest. Before you go to a bank for funding walk in the banker’s shoes to understand the questions he needs to ask..
Question 1: Why do you need a loan?
A great answer would be to grow the business or to automate to reduction costs or waste.
(increasing debtors because of increasing sales, more staff to handle growth, new equipment for growth or to reduce costs)
Questions2: Can you afford to repay the loan and the interest?
(have a Return on Investment ROI already calculated to show you can repay the debt and about 3 times cover on the interest)
Question 3: What do your business vital signs show
(don’t wait for the financier to tell your stock or debtors are too high, understand industry bench marks.)
- Net Tangible Assets – financial strength
- Debt to Equity – risk
- Quick ration – cash flow
- Gross Margin – opportunity from growth
- Interest Cover – risk
Question 4: Do you have accurate financial records?
(when you go to financier, go prepared, have a full report, answer questions, don’t be like so many people on Dragons Den, embarrassed by their lack of knowledge of the financial position of their business)
- Current Balance Sheet with prior year comparatives
- Current Profit & Loss, Year to Date (YTD) and prior period comparatives
- Forecast, what does your balance sheet, profit & loss and cash flow look like before and after the funding?
- Full picture of personal and company income and earnings.