Getting a start-up loan from a bank

In a previous life I provided coaching and training to Business Banking Relationship Managers of a major high street bank, and still remember one specific appointment in the beautiful city of Chester. I was observing a Start-Up Relationship Manager who welcomed a gentleman that was starting a consultancy business. The attending business wanted to chat about an account, seek advice and a request to borrow £10,000 to start the business.

Naturally, when we got to the lending application, the Relationship Manager asked to see a copy of the business plan, at which point the consultant reached into his wallet, pulled out a business card and handed it to me. On the back of the card read the words “I’m going to make one million pounds.” Needless to say, the loan was rejected.

Now, I can’t offer any magical formula that would have ensured the loan application was approved, but every applicant needs to give themselves the best chance possible and here are some tips to help. There are other routes to apply for funding and some work better for others, and although these tips focus primarily on bank lending, they can also form the basis for other outlets of lending.

Create a detailed business plan

Business plans need to be much more than just an outline of what the business will do, as the bank viewing your plan will want their money back. Your plan will highlight how much of a risk the loan will be. So, be robust and cover the following categories:

• Business Details (contact info, key personnel and a brief description)
• The Business:
  • Vision (the business idea and goals, including financial goals)
  • What the business does (features and benefits of the products/services it provides What makes it different from its competitors?)
  • Legal requirements
• Sales and marketing
  • Market research (including market trends, proof of research, customer profiling)
  • Managing market risks
  • Pricing (including market comparison)
  • Promotion and advertising plans
• Running the business
  • Staff
  • Premises
  • Suppliers
  • Equipment
  • Operational risks
• Finance
  • Start-up costs (how much do you need to start trading and why)
  • Personal survival budget
  • Profit and loss forecast
  • Sourcing finance (not just the money required from the bank, but any other money)
  • Managing financial risks (For example, if sales are less than forecasted or if start-up finance takes three months longer to obtain)
  • Cashflow forecast

Be honest in your application. If you think you need £30k, ask for it and detail why in the plan. I’ve seen many occasions when people assume that if they ask for less it will be more likely to go through, when actually what the bank are looking at is “will this amount get you where you need to be?”

Once you’ve read through your business plan, read it through again and then get someone else to read through it. Aim the plan at someone who has no idea of your business or industry, and answer all their questions in the plan itself.

Back up your plan

I don’t mean onto a hard drive or USB, but back up your skills. Source letters of intent from potential customers and provide them as appendices. Also, include a relevant CV for you and any other key personnel, to help the bank understand the people behind the business.

The appointment

First, book appointments with every bank you can. If you are successful from one, you’re likely to be successful at others and you can then choose the best deal for you. If you’re not successful, then you won’t have to wait long until your next appointment.

Then, once your appointment is confirmed, email your business plan, CV and letters of intent as soon as possible. This will encourage the relationship manager to read through your plan long before you meet them. Hopefully, the questions you’re then asked will be more constructive and add further weight to the plan.

Also, remember that whilst the decision is often that of a computer or a credit risk department, it is vital that the Relationship Manager has your back. So, be honest, be open and work with them.

Finally, I can’t promise that following each of these steps will guarantee you a successful loan application. However, I can pretty much guarantee that you won’t be successful if you don’t.