Dear Doctor, I am considering going to a bank for a loan – what are the things I should consider?
Juliet Rogan says...
Got a question for one of our Startup Surgery Doctors?
Submit it now
1. Understand the purpose of the debt facility that your business needs:
- Is it for working capital or seasonal fluctuations?
- Funding for an acquisition
- Funding to invest in the growth of the business
2. Be able to demonstrate the repayment source for the required debt facility
- In the case of working capital – the facility will fluctuate either monthly or throughout the year
- Acquisition finance will be repaid by the cashflows from the consolidated entity, once the synergies have been exploited.
- In reviewing growth finance (from a senior debt perspective – rather than venture debt) the business will have to demonstrate profit and cashflows from the core business that can service the interest and capital repayments of the loan facility.
3. Clear management information
- As fast growth tech companies often have a limited trading history and get small company audit exemption it is important to ensure that management information is clear, accurate and up to date.
- Be expected to provide a Profit and Loss account, Balance sheet and Cashflow for the last 12 months and be able to provide forecasts for the expected life of the financing facility
4. Share information
Share as much information around the strategy/ mgmt. team and investors as possible with your bank manager; they represent the voice of your business through the bank and will be quizzed at all stages about your company, as such is it important to ensure that your representative is well equipped to argue your case.
In the event that you do not succeed with the request, be sure to get a clear understanding of the reasons why, you can also formally appeal a credit decision with the bank.
If you do get declined by your bank, speak to another bank, the worst they can do is say no and you may find they have a different approach or a sector aligned team that has a better understanding of your business.