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2011-10-01 00:00:00Starting a BusinessEnglishBelieve in your Business? Make Sure the Bank Does too! in your Business? Make Sure the Bank Does too!

Believe in your Business? Make Sure the Bank Does too!

3 min read

To take your small business idea off the ground and soar to the heights you envision for it, you need capital. While there are many avenues today that small businesses can tap to raise capital, bank loans are among the most popular.

First things first:

Ensure that your financials are in order because any bank you go to is going to ask you for your financial statements first. A free accounting software can help you get this out of the way.

Step two:

Mirror, mirror on the wall, which bank is the fairest of them all? In other words, which is the right bank? Try researching or asking friends and associates for suggestions. Watch out for news of banks financing businesses similar to yours. You can also ask the local Chamber of Commerce for recommendations or check with bodies like NASSCOM, FICCI, CII, and other professional networks that your business may be a part of.

Narrow down this list of recommendations to banks that might be willing to lend you capital and set up appointments. Be clear about what you are looking for from the lending institution so you can evaluate your options. Research says entrepreneurs who have built a relationship with the lending institution before asking for funding are most likely to get the business loan they seek.

The 5 C’s of Small Business Loans Qualification

Understand the risk assessment processes banks use to determine loans and accordingly meet the five parameters that govern your application:

Cash flow:

Do you have proof that you will be able to repay your loan? The historical and projected cash flow of your business, generated by your free accounting software, is the evidence you need. The bank assesses the amount of money you have left after overheads such as rent, payroll, inventory, etc. It may also ask to examine other financial statements, personal credit history or in case of an expansion loan, the customer payment history.


To reduce the risk of lending, you will need to offer some assets as another mode of repayment. Collateral can include real estate, equipment, inventory, accounts receivable or securities. A personal signed guarantee of repayment by someone may be required as an additional assurance. Banks usually view liquidating assets as a last resort: they would rather work to find payment solutions.

Capital: Banks will carefully check to see how much of your personal investment you’ve put into the firm. Use your free accounting software to determine if you have the required equity to balance off debt. Your investment sends a message of confidence to the bank because it indicates the effort you will put in to ensure the success of your business.

Character: Your parents were right: good impressions do count. Some factors that banks use to gauge your trustworthiness are education, experience, references, personal credit history, commitments honored, etc.

Conditions: Banks will ask for an analysis of risks involved in the business and prevalent industry conditions. You will have to explain what the loan is intended for, such as buying equipment, and how you will meet the challenges of your risk analysis.

Write a winning loan proposal

A carefully thought-out loan proposal is very important for securing a loan. The proposal must include an executive summary that describes you, your business, and the amount you intend to borrow, what it is intended for and how you plan to repay the capital.

All of this must be described in detailed after the summary, taking into account factors such as ownership structure, suppliers, potential customer base, locations, and future plans. Include a management profile detailing the qualifications and experience of all the owners and employees. Attach market reports that cover your customer base, competitors, and the niche your product or service will fill.

This conveys to the bank that you have the required knowledge of the scope of your business in the market. If you are a start-up, use your free accounting software to create the financial statements and projected income statements to be submitted with the proposal. Established businesses need to submit balance sheets and income statements of the last three years. This section will also include details of collateral and your personal financial statements.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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