Business Loan Rates
Most businesses will need an injection of cash at some stage, either during their start up or to expand later or keep a positive cash flow during a lean period. And for most people they turn to the banks and apply for a loan or overdraft and this is still a good course of action even if money supply is tight and each bank is perhaps more prone to lend less.
Banks have stringent rules for lending money to businesses and it is important that you understand business loan rates and what they are looking for before you approach them for money.
It's harder to get a loan to start a business than it is to get one for buying a car or to make home improvements.
The amounts will tend to be larger and the loan will be taken over a longer period of time.
Since the credit crunch getting a loan has become much harder, as banks have become more sensitive to bad debt.
The CAMPARI method - how banks check you out
Most major banks in the UK use a checklist of requirements, which you have to meet to become eligible for a loan. This is known as CAMPARI. Understanding what this list is will give you a head start when preparing your interview and will make sure that you do not turn up at your loan interview unprepared.
- C = CHARACTER: You have to present yourself as someone who is knowledgeable about his business, assertive and confident, and has the necessary staying power and enthusiasm to succeed at it. Dress well and offer a firm (but not ferocious!) handshake. Speak clearly and maintain good eye contact with the bank manager.
- A = ABILITY: How good is your business plan? How much market research have you carried out. Do you give the impression that you have the necessary financial and service skills to run a successful business. You must know your sector well and be able to deliver a high quality product or service.
- M = MEANS: Do you have any private assets to support your business start-up? The bank will need to be confident that they can recover their money in the event that your business fails. The bank will be very wary of lending to someone with no assets. Putting up part of the money yourself demonstrates your commitment to the business and your confidence that it will succeed.
- P = PURPOSE: What exactly is the loan for? Being vague on this issue will give the impression that you have not given sufficient thought to your proposal. Be precise about how the money will be spent.
- A = AMOUNT: The second "A" stand for the amount of money you are asking for. Are you asking for too much or too little? Following on from P, make sure you have accurate figures prepared to convince the bank that the amount you are asking for is justified.
- R = REPAYMENT: At the end of the day the bank wants to be sure it will get its money back. You have to demonstrate to them that this will be the case so you need to detail your cash flow and liquidity forecast to persuade them of this.
- I = INSURANCE: Even the best laid plans go awry and the bank will need to see that that you have insurance in place to protect your business against unforeseen calamities, which could prevent you from repaying your loan.
You have to do as much as possible to reduce or remove the risk to the bank. Banks do need to lend money to survive but they have become more cautious and now check their applicants much more thoroughly than they may have done in the past, when money was washing around the system.
Banks may now demand that you agree to a set of conditions before they will lend money. These 'covenants' are basic commonsense but if you break them the bank are entitled to demand an instant repayment of the loan.
Shop around for a deal
Don't automatically go to you current bank for the loan. Although you may have a personal record with them it will not necessarily help you with a business loan. Some banks may be running promotional deals, with reduced rates of interest and add-on sweeteners for start-ups or business loans. If you have done your homework and have an impressive business plan then you will be in a position to choose between loan offers.