Who should read this document?
Entrepreneurs, Managers, CFOs, Controllers, Financial Managers, Key Users, Auditors, Tax Advisors, Bank Managers, Financial Analysts, Management Consultants, Business Professionals.
Enlist the bank as your partner adopting a proactive attitude that exceeds the bank’s expectation and drive to the approval of your credit request.
In other words, you need to stay out of the crowd!
“A banker is a person who is willing to make you a loan if you present sufficient evidence to show you don’t need it.”
HERBERT VICTOR PROCHNOW (Banker, 1897 – 1998)
“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
JEAN PAUL GETTY (industrialist, 1892 – 1976)
THE BANK WILL BE YOUR PARTNER
Before you start this journey that will, hopefully, end with the approval of your credit application just sit down and take a breath.
It may sound difficult but you need to start seeing the bank as your new partner, a sort of shadow shareholder with expectations on your business adventure to get their own part in the share of mutual success.
Why this may sound so difficult?
Well, banks are often perceived as grey greedy stakeholders which are only interested in getting their own reward and have little consideration for your business other than just reading your financial statements and information.
This may be true for some big financial institutions toward small-medium customers; however, you may discover that small-medium financial institutions (for example local banks) are willing to establish a more collaborative relationship with you.
When you get a shortlist of banks and start having your first meetings with them, don’t just listen to their long list of requests, but start making your requests too.
How is this possible? The bank is a monolithic subject and quite rigid on diverting from its rules and policies.
Here comes the trick: exceed their expectations!
You may offer to give additional information such as what is the approach and the logic behind your planning, providing different scenarios that may demand for different levels of credit, explaining pros and cons of each scenario and which one you think is the more probable to happen and why.
Discuss this information with the bank and ask for their opinion and advice too.
In other words: be proactive and prove that you are committed to manage your business at the best of your abilities and keep the bank updated on initiatives that will sound as just as promising to them as they do to you.
You may discover that you will get a green light from more banks than the number you had initially thought of!
YOUR COMPANY CURRICULUM VITAE
The first step you need to do when borrowing money to make yourself known to the bank, is to include your company’s curriculum vitae that outlines the business, history, patterns over time, future projections and personal data.
WHAT INFORMATION THE CURRICULUM VITAE MUST CONTAIN AND WHY
It is crucial to know the information that would make up your company curriculum vitae when qualifying for credit. These are both qualitative and quantitative and concern the business, management, industry and product, market, historical data, strategies for the future, financial statements and additional information.
Let’s now have a look.
• Name and date of incorporation
• Legal nature and corporate structure
• Mission and vision
• Description of the activity
• Financial statements information
• Membership in a group
• Critical factors for the success of the company
• Short-medium-long term objectives
• Further useful news
The date of commencement of the company and its history are essential indicators for the credit application, providing information both on business continuity and on financial requirements.
If you have recently started a company, you have a bigger financial need for growth and development than older businesses.
Other factors such as strategic choices, the stage of the life cycle of the business (decline or expansion), credit risk, the economic and market situation must be clearly presented.
Indicate whether you are working in the market as a sole proprietorship, a partnership, a corporation or other legal structure.
If you are part of a group, the banking assessment of the group as a whole and the emphasis of the advantages and risks for the individual companies, has assumed increasing importance in the creditworthiness assessment process. The bank must be able to identify the relationships within the group that may influence the performance, solidity and creditworthiness of your business.
Corporate aim, operation undertaken, mission and corporate vision identifies the company’s market sector, whilst the information on the key financial statements facilitate to understand the dimension and success of the company.
Describe your team as well: the management, the staff, their position (how many employees, how many workers, etc.) and their skills.
Describe the qualification of the company: the fact that certain processes are regulated or subject to specific requirements by law (for example in the pharmaceutical sector) results in better control and less risk.
Highlight the essential success factors such as an indication of management skills, structure of the company, products and services, etc.
Provide the bank with short, medium and long-term goals assisted by a financial planning that is a fundamental component of the loan application. It is also useful to highlight more details on any changes in the name of the company, legal nature, offices, management and on merger, demergers and uncommon events.
• Professional experiences
• Strengths of management
The bank also requires information to facilitate an evaluation of the quality of management. Provide a summary of the management and shareholders’ current and past experience in the company’s sector or in other sectors and of their strengths.
THE MARKET, THE SECTOR, THE PRODUCT AND SERVICE
• The sector of the company
• What do you sell and how you sell it
• What distinguish you from the competition:
– Customer service
This section includes a definition of the operation of the company, of the characteristics that differentiate your product and service from that of competition, of the presence of entry barriers and of the phase of life of the product or service.
• Market size
• Market trend
• Market share
• The main competitors and analysis of strength and weaknesses compared to them
Moreover, provide the bank with the size of the domestic and foreign market, the market trend, the market share and an overview of the key competitors. With this information the bank has the ability to gain a more realistic vision and knowledge of the company’s strategic background and positioning.
• Turnover trend
• Profit and cash flow trends
• Changes in the financial structure
It is important to analyse and illustrate which factors have influenced the evolution of turnover over the years. A drop in turnover, for example, explained by a careful selection of customers that led to the payments on time, is not inherently a negative factor.
Indeed, a banking analyst can read the decline in income, if correctly justified, as an effective and viable management of your business such in the case, for example, where you have adopted a cost reduction and productivity increase strategy.
The source and application of funds is also another important information.
This statement is especially useful to evaluate the company’s growth, the financial needs arising from it, and in choosing the best method to fund these needs.
By making use of projected fund flow statements, management may anticipate the adequacy or insufficiency of working capital.
Illustrate to the bank what strategies you expect to follow in the coming years to achieve sustainable growth when you apply for credit, which will allow you to increase your value and your competitiveness.
TOOLS TO PROVIDE PROFESSIONAL FINANCIAL PROJECTIONS
If you are not an Excel skilled user (especially about financial template and formulas) or a financial modeler, it is advisable to use some specific software available on the market.
Try to avoid the simple templates that tempt you because they are free and easy to use. You may end up with a poor or incomplete level of information and represent a financial structure that doesn’t really fit with your company or miss an integrated analysis.
You may want to give a chance to ProfitQube™ at:
the Enterprise Integrated Financial Planning (EIFP) software that enables both Entrepreneurs and Financial Professionals to formulate an organization integrated forecast and verify profitability over a period of 5 years.
ProfitQube™ is a flexible application developed in Excel/VBA to manage multi-company/scenario with a user-friendly interface for Services, Trade, Manufacturing or Multi-Business organizations, as a single entity or as a group supported by consolidated financial statements, SWOT and Balanced Scorecard analysis.
ABOUT THE AUTHOR
Crown Consultancy Services was founded in 2000 by Dr Gian Paolo Avanzo, PhD (Business and Economics University).
Gian Paolo is an Entrepreneur and Finance Professional with established managerial experience, team player skills and a sound knowledge of Projects and Business Processes in multinational environments.
With over 35 years of career, he has held executive roles as CFO, Financial Analyst and Project Manager for 10+ years at Unisys, Purina, Avdel, TNT and Chubb. He has then accumulated vast experience as Senior Consultant/Project/Change & Transformation Manager implementing SAP ERP and Organization Projects worldwide for blue chips (Total, Novartis, Shell, ABB, AbbVie, Kraft Foods, Owens Illinois, Saudi Electricity Company, Fujifilm and more) for 20+ years.
Partnering with Accenture, Atos Origin, Axon HCL, Bull, CRA, Deloitte, E&Y, IBM, Infosys, KPMG, PWC, Siemens, Tata, Unilog, SAP and more, he caters cultures and methodologies from these consulting firms to provide his Clients with first class services and products.
Combining his deep industry expertise ideally places him to deliver best Business and Financial Planning Practices to his Customers, inspiring organizations and individuals to accomplish more.
To offer this wealth of experience also to SMEs and Financial Professionals, Gian Paolo has designed, developed and markets ProfitQube™ at www.crownapplications.com – the first and the only Enterprise Integrated Financial Planning software (EIFP) – that brings together the ease of use of Excel, the power of VBA language and the end-to-end business process simulation for Manufacturing, Trade, Services, Multi-Business, SWOT and Balanced Scorecard analysis in one modelling environment.
He is a passionate piano player, interested in pseudo-archaeology and sometimes writing rhymes when particularly inspired!
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