Part II – APPLYING FOR BUSINESS LOAN
Even if you are taking a loan from informal sources, a certain minimum level documentation is absolutely right. Documentation is necessary for clarity, records, and even legality. Documentation is also a demonstration of good faith on both parties. Do not shy away from it.
Once you have established the type of loan of loan you need for your business and possible sources of the funding, the next thing you need do is to apply.
Depending on the specifics of a loan, application will typically comprise of at least a few documents comprising of a formal application; evidence of legal incorporation/registration; company profile; cash flow statement (projection over the life of the loan); historical financial statements; business case and plan etc. A very integral part of the application is the loan purpose for which the loan will be used. You have to also suggest how you plan to make the loan repayment and over what tenor. Where the lender needs a collateral, you should suggest how you plan to secure their exposure.
- Discuss with your Account Officer (Or, what the bank checks):
If you already have an existing banking relationship, the first point of discussion should be your Account Officer. It is important to discuss with your account officer from the beginning for at least two good reasons. First, you get to acquint your bank as to your plans and the possible support you might need from them. Second, some banks, as a matter of policy, do not offer the financial support that may best be suited to your situation (or sometimes not to your business stage, sector or size). In such a case you get to know ahead of time and and work to contact other possible sources that might support you. If on the other hand, your bank is amenable to providing the support, your account officer will go through with you their possible terms. Knowing this will help you prepare your documentation correctly and satisfactorily.
- Prepare and submit your documents:
Each borrower and their credit request is a different situation to the lender. That is because even if your credit request is similar to another borrower’s, you offer a different risk profile to the lender. Your discussions with your account officer, mentioned above, should bring out exactly what you need to submit to the lender to meet their requirements. Generally however, the documents will include the following:
- Company’s evidence of registration,
- Company’s profile,
- Loan application stating purpose and suggested terms (such as tenor, security and repayment proposals),
- Business plan,
- Audited accounts for say the last three years/Projected cash flow statement, etc.
Integrity and diligence are absolutely necessary in coming up with the documents above. Work with your accountant and consultant to draw up the documents that are all verifiable.
- Follow up:
Once your documents are ready, you submit them to your lender and follow up. Most institutions have a time frame within which they have to come up with a decision on your application. Within this window however, they can always call and seek clarifications and/or additional documents and information. Follow up to ensure that your request receives the response it deserves. Time is key.