The successful loan application
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Transcript of The successful loan application
THE SUCCESSFULBUSINESSLOAN APPLICATION
Raf Vlummens, CRAEntrepreneurial Coach
(c) Raf Vlummens CRA 2015
About me…
• Certified Credit Risk Advisor (CRA) specialized in the funding of startups and growth seeking business
• More than 30 years of experience in major international banks in the funding of startups on three continents (Europe, Africa, Asia).
• Entrepreneurial Coach assisting startups with their business models and funding strategies
(c) Raf Vlummens CRA 2015
Outline• So You Think You Need a Loan?
• Purpose
• Amount
• Loan Maturity and Terms
• Repayment
• Collateral
• Personal guarantee
• Components of a loan application
(c) Raf Vlummens CRA 2015
So You Think You Need a Loan?
• Getting a business loan is an age-old problem. Most Entrepreneurs find it to be one of the greatest struggles they face in their entrepreneurial journey.
• Process is time consuming, even sometimes frustrating, your chances of being successful are greatly increased when you are well informed and well prepared.
• Being informed is doing your homework and understanding the borrowing process. Being prepared means putting together a meaningful loan application that addresses the most common questions the credit risk analyst will ask.
• Overwhelming? Look for professional advice and support.
(c) Raf Vlummens CRA 2015
Who is asking?
• The first assessment a credit risk analyst will make is to look into the people who are asking for the loan.
• Are you and, eventually your partners, the right people to run the business in a successful way?
• Are there any skill gaps in the management and how are they addressed?
• Do you have a successful track-record?
(c) Raf Vlummens CRA 2015
Purpose
• A clearly defined purpose of the funding request is critical.
• Working capital is used to meet needs that will be repaid during a next full operating cycle, not longer than one year.
• Loans for Capital Expenses (CAPEX) will be used to meet needs (buildings, equipment,…) and will be repaid with cash-flows over a certain period of time, usually 5-7 years.
(c) Raf Vlummens CRA 2015
Amount
• Asking the loan officer ‘HOW MUCH CAN I BORROW’ is not the best strategy to get a loan….
• Better is to tell how much you NEED to support specific business needs
• Clearly defined business needs should be tightly aligned with the amount you are asking for.
Remember:
• 100% financing is not an option
• Never ask to borrow money you don’t need.
(c) Raf Vlummens CRA 2015
Loan Maturity & Terms
• The lender will want to know how long you need to borrow the funds.
• How and when the loan has to be paid back
(c) Raf Vlummens CRA 2015
Repayment
• Loan repayment is a big deal for bankers/lenders.
• You have to give a serious and careful consideration on how your business will repay the loan and the interest.
• The lender will look into documented evidence, such as financial statements, projected cash flow statements to determine if your company can and will generate sufficient cash flow to service the new loan.
• Don’t forget that the banker/lender is risk averse and want to as sure as possible that the loan will be paid back.
(c) Raf Vlummens CRA 2015
Collateral• The money a bank will lend you is in fact the
money of those clients of the ban who have deposit their savings on their account. Like your savings…
• Banks have to make sure that the money of the savers is ‘safe’ and can’t be given back to them when they ask.
• To minimize the risk that a loan wont be paid back, banks require collateral to secure the loan.
• Prepare yourself, identify available collateral, estimate the value (don’t overvalue!) and prepare to provide supporting documentation to justify its worth.
(c) Raf Vlummens CRA 2015
Personal Guarantee
• Why should a bank trust your business when you don’t want to give a personal guarantee? Is it because you are not sure of the project?
• It’s almost a certainty that you will be asked to provide a personal guarantee. Perhaps not of the full amount but still a personal guarantee to prove that you believe 150% in the project and are willing to pay with your own money if it goes wrong.
• It lowers the risk for the banker and make him more confident.
(c) Raf Vlummens CRA 2015
Packaging a Loan
• How does a successful loan application looks like?
• Loan packaging, as a loan application is called too, is not an exact science; loan packaging means different things to different people.
• A good package will tell a compelling story and will answer most, if not all questions, the credit risk analyst may have about your application.
• There are 4 major components, the ‘4W’s of Funding®’
• Who is asking? Why you are the right man to make this project a successful one?
• What are you asking?
• Why do you need the money?
• When, and how, are you are going to pay the loan back?
(c) Raf Vlummens CRA 2015
Need some professional advice?
One of our services is assisting entrepreneurs and growth seeking business with their funding applications.
It goes from reviewing the application you prepared and give you some candid feedback till assisting you through the process as a coach helping you in preparing a successful loan application.
Services are personalized and one-on-one (through Skype or meetings).
Contact me at:
- email: [email protected]
- Skype: raf.vlummens1