In the process of creating your business or launching a new project, you would like to obtain a loan from your bank. Not always easy to be granted this loan … So how to do?
What to keep in mind
The main activity of the bank is to finance the economy through its public and private enterprises. It is above all a company, and like any company, it seeks first to optimize its profitability and above all to minimize its risk. To consolidate structures in the event of a financial crisis, compliance with a certain capital ratio is imposed in relation to the appropriations granted.
This is why your bank is extremely cautious when applying for credit. First, it analyzes closely related risks. It may also be shared with as many partners as possible in order to limit the negative effects.
This has resulted in the difficulty for companies to obtain bank financing. Each bank has its own criteria to judge whether a credit application is acceptable or not, and thus to provide financial assistance to a company.
For the good functioning of your business, you need this loan, then you will still persist … In order to put all the chances on your side, some deciding factors in the agreement or not of the loan are to be taken into consideration. The bank will judge your claim according to these various factors.
Different categories of loans
There are 4 major categories of loans depending on your needs.
The medium- or long-term bank loan is used to finance your new purchases as a priority.
Leasing makes it possible to finance the purchase of movable or immovable property. It has an option to buy. Aligning the bank loan and the leasing makes sense if the amount to be financed brakes the bank.
The long-term lease gives the possibility of renting a property, but does not include a call option.
Short-term credit, for its part, is aimed at financing the business cycle of the company. Your solvency guarantees must be reliable and certain. This type of loan is only for companies already created.
Training and professional experience
In the eyes of your bank, your initial training, but also your professional experience, are an integral part of the factors to be taken into account. Depending on the nature of the project, a certain type and level of training and / or professional experience is required. Depending on the sector of activity, for the bank, you will, in relation to these criteria, judge whether or not to manage such a project. Opt for a project that is, as far as possible, linked to your level of education and work experience.
A viable project
Generally, banks tend to finance projects of which they have a minimum of knowledge on the subject. With this exception, loan applications for innovation and research are more difficult to obtain.
To determine whether or not your project is viable, it must first be economically viable. It is to the bank that this appreciation comes, as with everything else, since it is to it that the final choice comes. However, take the lead in demonstrating the profitability of your project. Gather important information. You must present an activity forecast (balance sheet, income tax account), in principle over 3 years, which plays a key role in the choice of the bank. Regarding profitability, the fact that your project is profitable is not enough. This profitability must make it possible to pay you sufficiently to be able to cope easily with the various loan terms, but also to leave room for maneuver for the development of your business. Leaving a margin of safety would be a plus. The assumptions presented as a result of your business plan should be as realistic as possible and should be linked to the working capital requirement determined by the difference between your stable resources and your stable jobs. To do this, press on specific documents (quote, order commitment, etc.). Although this is not based solely on this criterion, the more guarantees you have, the greater the likelihood that your application will be accepted by the bank. press on specific documents (quote, order commitment, etc.). Although this is not based solely on this criterion, the more guarantees you have, the greater the likelihood that your application will be accepted by the bank. press on specific documents (quote, order commitment, etc.). Although this is not based solely on this criterion, the more guarantees you have, the greater the likelihood that your application will be accepted by the bank.
Simulators of bank loan repayments allow you to calculate the amount of maturities according to the parameters related to the loan in question.
The minimum compulsory contribution
In terms of personal contribution, proportions must be respected. It is advisable to balance the equity and the borrowing funds as well as possible. However, there are no general rules. Some banks would be of the opinion that the minimum ratio should be 25-30% personal contribution to a business start-up or takeover project, when the loan finances a ie according to industry standards, the risk of default is virtually nil. The proportion varies according to the overall quantity of the file and its holder. In other words, your bank will pay particular attention to assessing your personal wealth and your room for maneuver after you have paid your contribution, if the latter exists. The whole thing is to balance the balance: your bank will be all the more satisfied if your contribution is relatively high but will see a risk too high if, as a result of this, you end up with too little financial means. You can appeal to your loved ones to help you finance this contribution. The bank analyzes your business plan, and the lack of capital is prohibitive.
The competition between banks
It is wise to compare the offers from different banks for your loan application. In order to favor the best offer, compare the different offerings of banks with their terms (interest rates, terms and repayment terms, etc.). These terms and conditions may vary by bank. In the event that you hesitate between several banks, put them in competition so that you can negotiate and obtain conditions that are more favorable to you (less restrictive clauses, for example). You can also choose to go through a broker to facilitate the connection with the banks. It is to some extent for them the assurance of having a file examined and presentable that they will consider with much more seriousness. It is also for you the assurance of finding one, or even several banks, likely to be interested in your project. This saves you time. To avoid any additional stress, do not hesitate to ask for the deadline of the file of the file from the first interview with your banker.
No need to minimize the amount you need to borrow. You would run the risk of running out of funds. You have to be given enough room for maneuver if the need arises, especially in the event of a cash flow problem. In the event of a financing requirement, the bank may no longer grant you a new loan, or may refuse an overdraft authorization.
Do not resort to borrowing based solely on your own resources, thinking that this will be enough for the operation of the business. To offset any cash flow problems, at least 20% of the company’s needs must be kept in capital by your personal contributions.