Knowledge Based Articles

What a bank looks for when lending to a "Start-Up" business


In a conversation with Sadie Moore, Business Manager @ Barclays Bank about "What a bank looks for when lending to a business".

Here's a recap of the session and 10 helpful hints when approaching a bank for a "start-up" loan.

As a business mentor and someone who helps entrepreneurs with securing startup investment, there are other opportunities and avenues for raising startup cash aside from the banks, family and friends etc., however, if you still feel a small business loan (depending on the type of business) from the bank is the way to go, here's a checklist and in no particular order;

1. Investment Type - What category
investment are you looking for? Asset financing, overdrafts, cash-flow or operational costs.

2. Industry Sector - for risk assessment, is it a heavy cash injection venture and on what terms.

3.You - Who are they lending to, have they got relationship with the bank already, history,are they trustworthy, what experience(s) do they bring to the table.

4.Abilities - what is their business and is the plan consistent with their pitch? Have they researched their market and what qualifications do they hold - for their proposed trade and last but not least, their ability to sustain the loan.

5. Margins - Again Risk assessment against reward (ROI),

6. The team or the person(s) - Are they
trustworthy, are their intentions legitimate and can that be verified? Compatibility with the type of industry they're in - and boils down to whether they believe you're right for that business (yes - gut feeling comes into play - after all, you're dealing with people)

7. Why - why do they want the money? Can they raise it any other way. Is it in line with the business financial assumptions,

8.How - How are they proposing to pay back and is the amount consistent with what they want to do with it?

9. Collateral - how much have they invested already or what stake is there in the business (assuming you already used some borrowed money to get started.)

10. Insurance - Is there an insurance policy in place (ie; Key man cover, Interest rate protection etc.) Securities against
lending etc...

Recap - Character, Ability, Purpose, ROI and Repayments - Cash is KING...and finally "gut instincts"

Hope this helps as a starting point - feel free to connect if we can be of further help.



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