How can I get a business bank loan?

Getting a bank loan from your branch to finance your business can be harder than getting a loan to buy a car, improve your home or even take a holiday.  Having come close to disaster during the credit crunch, Britain’s banks remain reluctant to lend to small firms. But it is still possible to get business finance from your bank – if you know how to go about it.

6 steps to getting a bank loan

Banks have set rules that you need to know if you approach them for a business loan. To stand a chance of your bank loan application being accepted, you need to play by these rules.

1. Explain what you want the loan for

You need to make a sound business case for why you need a loan. You need to write a clear business plan, showing how your business is working now, why you need extra funding, how you will use it – and the returns you expect it to bring.

It comes down to getting the figures worked out and on paper. Vague ideas, like ‘to buy in stock’ ‘to get us through the slow season’ will not impress the decision maker. Costed plans, ‘to buy in £1000 worth of stock to realise £2,500 worth of sales and £1000 profit’ might stand a better chance.

Keep your plans and forecasts realistic. You don’t have to impress the bank manager with a revolutionary business idea, just show how there will be a return on their investment.

2. Show how your business will repay the loan

Lending decisions are based on an assessment of risk. If the bank thinks there is a risk they won’t get their money back, they will not lend it in the first place. So you need to show you can make the repayments.

The bank will want detailed cash flow and profit forecasts. Your accountant should be able to present your figures in the most appropriate way – his or her professional approach will help demonstrate that yours is a professionally run business.

It will do no harm to include details of your experience in your sector, and details of your management team. The more confidence the bank has in your abilities, the better your chances of getting your bank loan.

3. Reduce the risk of default

It costs the bank money trying to get repayments from defaulters (but they will do it anyway). The more you can do to show you will make the repayments the better your chances of being accepted. You may even get a lower rate of interest.

There are two ways to reduce the risk to the bank.

The first is to put up security. This is something you would lose if you cannot repay the loan. You may be able to use the items you are buying with the loan as security if they are assets like vehicles or machinery. Alternatively, the bank might ask for personal security, such as your house.

The other way to reduce risk is by putting in equity. Putting your own money into the business will show the bank you are serious about it – and reduce the amount you need to borrow.

4. Expect covenants

Some banks may insist on covenants before they agree to a loan.

These are usually conditions such as maintaining your insurance, keeping any capital purchases you used the loan for, and restricting the amount of money that can be taken out of the business by yourself or by shareholders.

You need to agree and stick to the commitment, or they will demand immediate repayment of the loan.

5. Follow CAMPARI Lending Principles checklist

Campari lending principles are a set of guidelines used by banks to support lending decisions. If your application includes answers to each one, you could be in a better position.

Character: Are you a competent business leader with a good trading history and a sound management team?

Ability: Can you show how you will repay the money?

Means: Do you have the means to run the business professionally?

Purpose: Are you clear what you want the money is for?

Amount: Have you shown why you need that much, and are your figures clear?

Repayment: Have you shown how you will meet repayments?

Insurance: Have you arranged adequate insurance to cover anything that could go wrong?

6. Don’t just rely on your bank

Just because they are your bank and they already know you, it doesn’t mean they are going to say yes to your loan application.

However, they are not the only bank or the only lender out there.

At Rangewell, we have mapped the entire business lending marketplace. We can work with you to understand your funding needs, identify the most appropriate solution, and search the entire market.

We can help find the most competitive rate for the funding you need, and support you through the details of the application process.

So not only can we help you secure the business funding you must have, we can probably help you pay less for it. Our service is free – so why not put us to the test?

Why Rangewell?

At Rangewell, our values are simple – We’re on your side. Our services are clear and transparent. We support a wide range of SME businesses of every shape and size, for finding every type of finance. Follow us on Twitter and LinkedIn for business tips and tricks, and feel free to call us on 0203 637 2340 if you’d like to chat about what we can do for you.