Banks don’t joke with their money. That’s why if you need a bank loan you have to be prepared to be quizzed a bit thoroughly. Sometimes after quizzing you, the bank would reach a conclusion that you do not need the loan or that the means by which you anticipate to repay is too risky.
If the gates for taking bank loans were to be open wide, banks everywhere would probably collapse. Because human beings “need” money for everything. So in case you really do need a loan to do business, here’s what you should be prepared to provide.
They don’t joke with their money so very often, the first thing they would want is something to fall on in case you default. Therefore, you or your company needs to have some asset that you’re willing to put on the line if things go bad and you can’t pay.
If you can’t put anything that is fairly valuable on the line as a guarantee, it means you don’t believe in your company and your business. Who should come and believe in it for you?
22. Business Plan
Some banks would go ahead to request your business plan. It’s how they can convince themselves that you have a solid, sound and sustainable business model and that you’re not just making a little money by some stroke of luck.
Did you start your business without an elaborate written business plan? Many businesses do. If you did, your chances of getting a loan to work with just took a hit.
33. Company’s Financial Statements
Not all businessmen have a solid footing in accounting and not all of them need accountants, especially when the business model is very simple or the business is very young. Unfortunately some banks ask for this sometimes, requiring a balance sheet that details your capital, your assets and liabilities, and your profit and loss statements for the past three years. If you’re unlucky, they would throw in the requirement of asking you to provide audited financial statements.
It probably makes banks feel a little safer when they know they’re dealing with a business that can pay for external auditors to review their financial statements. If you don’t have it, you’re probably not a very strong business that they should be very eager to do business with.
44. Your Company’s Other Financial Details
It can feel like a chore but you could be asked to provide detailed financial information on your company. This could include the company’s bank accounts, investment accounts, any loans taken in the past (if any), any debts incurred and how they came about, the company’s tax payment history and so on.
55. Your Personal Financial Details
What’s your net worth? What are your assets and liabilities? What do you have in your personal bank accounts and your investment accounts?
If you don’t own the business alone, these questions would apply to the major shareholders.
Of course since it’s one of the things that reduce risk, banks will demand that your business take an insurance package, depending on the amount of risk they perceive. What if after taking the loan, you get involved in an accident that incapacitates you for the rest of your life? Or what if you die?
The bank would feel sorry if it happens but not just because they like you so much. Their money is lost.
And hey, just remember that after supplying all these things you’re not entitled to a loan. The bank could still turn you down if they’re not convinced you need it or you can repay.