One of the major complaints that I receive from small business clients is that banks are too rigid in their demands whenever they are seeking financing. A common cry is that many financial institutions are happy to collect their money, but never show the same appreciation when a loan request is made.

Anyone who has made pitch for financial assistance and left the bank rejected and dejected has probably wondered, “What exactly does this bank want from me anyway?”

Recently the Small Business Development Agency in association with Scotia Small Business held a workshop on strategic business planning to assist small organizations to grow their operations.

Peter Mohan, manager of Scotiabank Morant Bay, gave an insightful presentation which revealed some key issues that bankers focus on when considering whether your loan application would be successful or not.

Mohan opened the participants’ eyes to the bankers’ point of view, by explaining why it was essential for business owners to prepare a plan with as much information and supporting material about their operations as possible.

“Banks are concerned with the sustainability of your business, your ability to repay the loan, and the risks surrounding your operation,” he pointed out.

Mohan noted that an effective business plan would assist the loan officer to assess these keys areas of an organization. “The quality of the information presented indicates the strength of the business,” he emphasized. Whether they need a loan or not, a business plan would also help entrepreneurs to arrange their ideas, check the viability of their businesses and anticipate problems before they happen.

Let’s look at some key concerns revealed by the banker, which can help you to obtain financing, and to succeed in your venture:

Is your business sustainable?

The longevity of your enterprise will depend on how practical your business idea is, how you have structured the entity, and the controls you put in place. Consider these questions:

–   Do you have a vision for your business?
–   Does your business idea satisfy a real need in the marketplace?
–   Have you evaluated the market in terms of competition and suppliers?
–   How do you differentiate yourself from your competitors?
–   What systems are in place to ensure proper monitoring of business
activities (cash, inventory, receivables, record-keeping)?
–   Is the business insured?
–   What succession plans are in place?

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Can you repay the loan?

Mohan pointed out that banks lend other people’s money, so they have to be convinced about a borrower’s ability to repay the loan. This is why lending institutions insist that applicants provide realistic financial documents accompanied with supporting evidence. The records needed are:

(1)   Balance Sheet

Bankers use this to get a picture of your asset base and the nature of your liabilities.

(2)   Profit & Loss Statement

Lenders want to see sales projections that are realistic based on your business. They also want to assess if your expenses are projected to grow ahead of your sales.

(3)   Cash Flow Statement

This reveals the net of your cash inflows and outflows and is really the key to the success of the business. Mohan noted that profit is not equal to cash flow; and that a business could show a profit but still be in trouble because the cash was not coming in sufficiently to pay the bills on time. To help manage cash flow, he recommended that business owners assess these areas:

–   Are your credit terms reasonable and give you enough time to pay your bills?
–   Are you carrying too much inventory?
–   Are you collecting from your creditors fast enough to meet your obligations?

What risks does your business face?

Risks to your business can come within and outside of your organization, Mohan revealed. Some of the external threats may be out of your control, but it’s wise to be aware of them when making projections. Some questions to consider include:

–   What is the state of the industry your business is a part of? It is under
threat from economic forces or changes in technology?
–   Is your own product at risk? Can it be easily copied by competitors,
or are you protected by patent?
–   Could your small business be swamped and overshadowed by a
larger competitor with more resources?

Mohan stressed that it was important to prepare a simple, interesting executive summary which would grab the loan officer’s attention. He revealed that the summary was oftentimes the only part of the plan that was read, and it could determine whether the banker continued to look at the rest of the proposal. Scotiabank has a business plan outline on their website www.jamaica.scotiabank.com, to help entrepreneurs with their planning. You can also access an interactive business planner via at www.financiallysmartonline.com.