How to get Business Loans Approved by Banks

Brief Introduction and why this topic matters

What is the purpose of the Loan Application/Request and why Banks need to receive a written one before starting any discussion with the client.

The ultimate reasoning behind Financing Requests or Loan Applications is the assessment of the risks involved for the Bank when providing such loan. 

There is no such thing as a universal template. What I provide here is an alternative, a guidance to a structured one that in my view provides all the information the banks need.

The Bank must know from the very beginning to whom it will be lending the funds.

There are many types of credit/loans. The Bank must know what type and main characteristics of the loan you are requesting.

Security is one of the most important topics when requesting loans and have a direct impact on the credit scoring and risk analysis done by banks. It is important to understand the role security plays and the basic considerations around it, to be able to propose adequate collateral to the bank in the request for financing and then discuss it with bankers.

Banks will look at how experienced your business is and what history of activity you have behind.

Who owns and who manages the Borrower is a crucial information for Banks

It is crucial to present a full set of financial statements when requesting a business loan. Banks need to know about the company's financial performance and they make many conclusions from them about risks incurred with a certain Borrower.

Banks also need to know about projected/estimated results, particularly when you are requesting a loan above 12 months.

Banks have certain knowledge and opinion about the several industries/sectors of activity. The views of the entrepreneur himself on the industry he belongs too may help the banks to understand the real risks being taken.

We discuss the importance of assessment of Other risks not covered before: technology risks, country risk, foreign exchange risk, and others.

SWOT, standing for Strengths, Weaknesses, Opportunities and Threats is an optional analysis that Entrepreneurs may include in their documentation supporting the Loan Application. Typically, for loans of higher amounts or complicated structures, the SWOT provides a good summary to he credit analysts at the Banks and may simplify somewhat their "reading" of the application.

Some documents are standard for the Banks as attachments to requests for financing. In general however, do not fall for "form over substance".

Credit ratings and credit scoring are measures of risk associated with a Borrower and a loan attributed by banks. All information received is analysed and included in the banks' systems. These then generate a code that "quantifies" the risk incurred.

Preparing for the discussion with the Bank has similarities to the way you would prepare for a job interview. You must convince the Bank that your company is worth lending their money to.

It is unlikely that you will be prepared for all possible circumstances and questions. So what to do when you cannot answer some of the questions asked?

We discuss why startups are considered riskier for banks than established businesses. Introduction to alternative types of funding from, for example, Angel Investors

In spite of startups being very risky for banks, some startups still succeed to raise funding from Banks. Let's have a look on how can startups be able to provide Banks the necessary comfort, in spite of having no financials and no activity to report.

We have learned what to do to properly require a business loan from a Bank. But we should also have a brief discussion about what to avoid - or not to do - while applying for a business loan.

From own experience and general knowledge, here are some examples of business loan requests that will likely not receive approval.