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Nicholas Sider, CGA
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Certified General Accountant
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Phone: 416-913-9243
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Fax: 416-406-4805
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E-mail: nsider@bellnet.ca
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360 Bloor St. W., Suite 505, Toronto, ON M5S 1X1
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Guidelines for Winning Bank Financing:
Size up the bank (Shop Around)
Don't restrict your options to your local branch. It's going to help your case if you deal with someone who really understands the business you are in. Finding that someone could be as simple as phoning the commercial loans divisions of two or three banks and getting a referral. Your Certified General Accountant will be a good source of information because of the feedback he or she has received from other clients and accountants. CGAs are also familiar with the response times of the various banks and their risk evaluation processes, which determine whether you get your financing and how much it will cost you.
Don't restrict your options to your local branch. It's going to help your case if you deal with someone who really understands the business you are in. Finding that someone could be as simple as phoning the commercial loans divisions of two or three banks and getting a referral. Your Certified General Accountant will be a good source of information because of the feedback he or she has received from other clients and accountants. CGAs are also familiar with the response times of the various banks and their risk evaluation processes, which determine whether you get your financing and how much it will cost you.
Do not make a formal application to a bank without first having an informal "getting to know you" discussion with the appropriate manager or loans officer. Give a confident summary of your proposal and ask for an indication of what the bank can offer and what the terms and costs will be for the financing you are seeking. This meeting will tell you whether you are on the right track with the right bank.
Be certain that the financing you seek will achieve the financial objectives you have set for yourself or your business, and that you have the capacity to service the loan. To gain the financing, you will have to offer security, such as a mortgage on your home or your business premises. You may also have to give a personal guarantee. If you default, you may not only lose your home but also the items covered by the personal guarantee, such as jewellery, shares, art objects, furniture and other household effects.
Banks want to lend, but not unless they can assess how much of a risk you are. You will need to prepare a loan proposal that presents in a professional manner a cash flow forecast, an income forecast, balance sheet forecasts, income statements for the preceding 3 years (if you go back that far) and a personal statement of assets and liabilities. This is an area where a CGA's help is vital.
You may think your reasons for wanting the bank's financial support are unassailably sound, but to get the money you will have to spell out exactly how you are going to use it. The bank will want to see a business plan or a detailed preview of the business function for which the financing is being sought, including marketing plans, details of suppliers and major customers and an assessment of the competition. It is also a good idea to include best-case and worst-case scenarios in your project outline.
Don't sell yourself short.
Don't assume that because you are the owner or manager of a business the bank will be impressed. The bank also wants to see how you - and your key associates - shape up on paper. Imagine you are writing a job application. List all of your own qualifications, major skills, practical experience and achievements, as well as those of your associates.
Before you submit your proposal to a bank, it would be wise to have it reviewed by me. I know what banks expect and will identify any deficiencies in your presentation. The better the quality of the application, the greater your chances of getting what you want and of persuading the bank to shave something off the risk margin it will impose.
Be prepared for a grilling.
The interviewing bank officer will have prepared a list of questions from which he or she will score you on your financial and business capabilities, your past performance and your likely performance with your proposed venture. The officer will note whether you are realistic and logical in answering questions; whether your loan application has been thoroughly researched; whether you are too optimistic about the proposal; whether you have given false or misleading information; whether you have a risk management plan; and whether the amount you are seeking is adequate.
Don't go cap in hand. The bank will not be doing you a favor if it grants you a loan. It will be doing business from which it will profit, provided that you honor your side of the deal. And don't take one bank's refusal as an answer for all banks. A different bank may see you in a different light and agree to your project. It happens all the time.
Kindly reproduced with the permission of the Australian Society of Certified Practising Accountants.
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