How do banks and other finance institutions assess your finance application?
Sizwe Tati, the managing executive of Absa Small Business, says the bank considers three main issues when assessing an application for business finance: the applicant, the business and the market.
"And all these components must have a symbiotic relationship with each other," says Tati.
Applicants must meet minimum prescribed criteria to secure a loan. The first thing funders want to know is if you understand what is entailed in running a business. They also want to see that you understand the importance of hard work and long hours.
You must be willing to take calculated risks, tempered by your business skills. If you don't have these skills you should at least show that you know how to pick up this knowledge.
Your business will need to be packaged attractively. And you must be able to explain what value your business adds to the product. You must be able to highlight the difference between your product or service and everything else on the market.
"Funders will look at the extent to which the applicant can afford to borrow," says Tati.
"How will the applicant absorb the cost of funding? Also what risk-reduction mechanisms exist around the balance sheet? Is there capital invested by the owner?"
Financiers will also want to know about binding contracts you have signed and what they imply. They check how indebted you are and how you repay your debts.
Funders will also look at your market when they assess your loan application. You must be able to show a thorough understanding of your target market's buying patterns. Then the funders will also consider how receptive your target market is to your product or service.
You need to show that you understand the regulatory environment of your market and where legislation could aid or hinder your investment. You must know any incentives and rebates available to you in your chosen environment.
Consider the political climate of the market, which might determine you cannot even sell your product in the proposed market. Unstable environments hamper business. You must show you understand the risks in your market segment.
Once you have mastered these factors you will be in a good position to get finance for your business, says Tati.