How to prepare your company for a bank loan application

A bank does not lend on the strength of a good feeling, but on the basis of numbers and trust. If you want to prepare your company for a bank loan application, the key is to submit clear documents showing that the business is healthy and can cope with the repayments. Good preparation increases your chances of approval and of better terms. After all, the bank does not assess only the company’s past, but above all whether it can repay the loan without problems even in less favourable months.

What the bank assesses

The bank is interested above all in your ability to repay the loan. It looks at your financial track record, profitability, indebtedness and the stability of your income. Your payment discipline towards the state and your suppliers is also important. The more consistent the picture you present, the better.

Put your accounting in order

The foundation is accounting that is up to date and correctly kept. Discrepancies or late financial statements make a bad impression and slow down the process. Before submitting your application, make sure that your statements faithfully reflect the state of the company and that you can back them up with an explanation.

• Up-to-date financial statements for the most recent periods.
• An overview of receivables and payables.
• A business plan and the purpose for which the loan will be used.
• An overview of existing liabilities and collateral.

Prepare a financial outlook

The bank wants to see that the loan also makes sense for the future. Prepare a realistic outlook of sales, costs and, above all, cash flow, which makes it clear that you will be able to cover the repayments even in weaker months. Optimistic figures without any backing come across as untrustworthy and tend to do more harm than good. It is better to present a sober outlook that you can defend than bold forecasts without any real basis.

Know your numbers

It makes a very good impression in negotiations when you can readily explain how your company has developed, the fluctuations in sales or your plan for using the money. It shows that you have your business under control. Conversely, uncertainty about the basic figures raises doubts.

Consider collateral and purpose

A clearly defined purpose for the loan and adequate collateral increase the bank’s trust and can improve the terms. Think ahead about what you can offer as collateral and exactly how you will use the funds. Being specific always helps. When the bank sees that the money is going into a meaningful plan that will bring the company further income, it perceives the loan as less risky.

Build your relationship with the bank in advance

Trust is not gained overnight. If you communicate with the bank regularly, hold your accounts there and comply with the agreed terms, you build up a history that will carry weight when you apply for a loan. A bank is better placed to assess a company it knows and whose account movements it can see than an unknown applicant. That is why it pays to deal with financing before you urgently need it, when you are negotiating from a position of strength, not under pressure. It also helps to be open about the company’s weaker points and to have an explanation ready of how you are dealing with them. The bank will appreciate a realistic view more than an attempt to cover up problems. In a lender’s eyes, transparency and predictability are more valuable than perfect but untrustworthy figures.

Preparation pays off

A loan application is not just a matter of filling in a form, but a presentation of your company. An accountant will help you prepare the documents, check your financial statements and put together a financial outlook that will stand up to the bank’s scrutiny. A well-prepared application usually goes through faster and on more favourable terms, which ultimately translates into lower financing costs.

Related articles: Company budget: how to plan costs and revenue, Business financing: loan, leasing or factoring, Break-even point: when your business starts to pay off.

Frequently asked questions

What documents does a bank usually require for a loan application?

Most often, these are financial statements for the most recent periods, an overview of receivables and payables, information on existing loans and the purpose for which the money will be used. For larger loans, the bank also asks for a financial outlook and documentation on the collateral.

How can I increase my chances of getting a loan approved?

Up-to-date and error-free accounting, a realistic financial outlook and the ability to explain the company’s figures readily all help. Good payment discipline and a clearly defined purpose for the loan are also important. Well-prepared documentation significantly increases the bank’s trust.