But whatever the reason is, it is important that you work closely with your accountant to ensure the process is managed correctly so as to maximise the chances of success to secure funding.
There is no hard or fast rule when it comes to the amount of money you should be looking to borrow from a bank, but it is better to consider a large figure over a smaller one. It’s not ideal to ask for $10,000, then be back a few months later for more – as it doesn’t show good financial management or planning. But as a guide, there should be a balance of 2 to 1 regarding current assets to current liabilities.
There are exceptions to when a business should seek bank funding, and it is not recommended that start-ups look to a bank for a great deal of assistance. Essentially it is saying that the bank will own your business – particuarly if you don’t have any assets or equity – and it often doesn’t show good stability if you require funding so early on. Of course there are allowances for this – for example if your business was about commercial rentals, it would be difficult to have enough money to fire from day one without third-party assistance.
So when the time comes to start the bank loan process, there are quite a few things that need to be in order and up-to-date. And this is where you need your accountant to really step up to the plate.
- It is important to have a clear and accurate set of financials, cashflow and profit projections (preferably three years – depending on what period the funding will be required for), a competent financial advisor and, as the business owner, a belief in yourself with the numbers to back it up. A complete package of accounts for the bank should include year end, to enable a look back at how your business has been performing, and projections to indicate what you think you will see going forward, e.g. will the balance sheet be stronger, or will you have a lot more plant and equipment?
- Be precise about what you require the funding for and remember, the more information the better for the bank. The numbers should be not be overly conservative, or too optimistic – keep them realistic and positive. You also need to include how the business will support the funding in regards to the ability to repay debt, as security is of paramount importance to any bank.
- Make sure you demonstrate that the business can cope with the debt, and also go in with a plan of what kind of funding you would like – will it be interest only, or principal and interest? Fixed or floating, or a mix? The structure of your funding is important, and if you have a good idea of what you would ideally prefer, and why this would be the best choice, then it is all beneficial to your application.
- As mentioned above, there is plenty of financial information required to get a business bank loan, and a good accountant should be happy to assist you with this process. Depending on whether you have approached the bank already, your accountant can also work with you on deciding which bank would be the best to work with – some will even have solid connections within the banking sector.
- Successful bank funding relies heavily on having accurate, detailed financials, so make sure you have trust in the services of your accountant to supply this for you – you really want to present the information right the first time, with no gaps/shortcomings or irregularities in the figures, as this could reflect badly on your application.
Not sure if you do have the right accountant on board? Make sure you understand everything you need to about the financial position of your business, so you can be better placed to manage the work they do. This will also ensure you can be involved in every aspect of the bank funding process – working alongside your accountant, rather than just relying on them to achieve a successful result.