A bank does not lend against enthusiasm for the project. It lends against the ability to pay the installment without choking operations. This is what it usually looks at, and how to arrive with that ready.
What it wants to see first
The underlying question is simple. Does the installment fit in the cash flow of the coming months, with room if sales dip a little? Collateral helps, but it does not replace that answer.
If the file explains how the funds will be used and shows where the installment comes from, the conversation starts better than if you only bring the amount you would like to receive.
Metrics that carry weight
- Sales and margin over the last twelve months, and whether the trend is up, flat or down.
- Outstanding debt against the cash flow available to pay installments.
- Customer concentration. A single large buyer raises the risk.
- Tax filings up to date and a credit report without recent surprises.
- Support for the use of funds. Working capital, an asset or a project with numbers behind it.
No single metric decides the case. A high margin with endless collections can be worse than a lower margin and customers who pay on time.
Documents worth having ready
- Financial statements for the last year-end and the current year.
- Tax returns for recent periods.
- A twelve-month cash flow with the new installment already included.
- A list of current debts, with balance, rate and maturity.
- A short note on how the funds will be used.
Ask your accountant for the first two. The forecast and the use of funds are a management job, not a bookkeeping job. If you do not have the forecast yet, start by projecting the 12 months.
Mistakes that slow approval
- Asking for a round amount without showing which month it is used in and how it will be repaid.
- Mixing household expenses with the company’s. The bank sees it in the bank statements.
- A forecast that does not match history. If you sold 100 and project 180 with no new contract, it loses credibility.
- Arriving the week something falls due. The review takes time, and a rushed no closes doors.
How to prepare before the meeting
Build the forecast, put the installment in and see whether the cushion holds. If it does not, lower the amount or extend the term before you sit down with the bank. Arriving with that correction already made carries more weight than insisting on the original figure.
In business financing the work is that file, not only the introduction to the bank.
In practice
Bring one page with the amount, the use of funds, the installment and the three tightest months in the forecast. If it does not fit on that page, the analyst will build their own, and not always in your favor.
