Creditworthiness: The who, what, when, where and why of your business

This is the 4th of a 5-part Financial Literacy series where we’ll discuss trending topics within the entrepreneurial space.

When determining a business’ bankability, the most concise frame of reference can be found in my previous blog: “A bankable business has sufficient profits, assets and liquidity to qualify for and cover a commercial loan.” Naturally, approaching a bank for a loan necessitates specific business credentials. It’s a culmination of my previous financial literacy blogs on commingling, cash flow, and bankability. These discussions all factor into a bank’s basic borrowing guidelines. This is essentially a map towards critically assessing the viability and profitability of your business.

It’s important to note that yes, financial stability is especially important to both your business’ longevity and your bank’s appraisal of you. However, this isn’t the predominant measure of operational health. Understanding that there are both quantitative and qualitative determinants of your bankability is paramount.

Preparing and maintaining strategic documentation that outlines those determinants is a more than just matter of foresight, it’s indicative of the level of planning, organisation and transparency required to build a creditworthy business. Think of it as the who, what, when, where, and why of your business; it’s a story that points the way towards the goal of loan approval.

What exactly does that story look like for your business? Here is a list of items that can give you a better picture.

  1. Business Plan
    What do you want to achieve as a business? How will this provide short and long-term value to your current and potential customers? Are you realistically positioned to meet the monetary expectations of your bank? Your business plan should explore those questions, and set out a path for future growth and profitability.

  2. Products or Services
    Within your business plan, the product or service you provide will speak to your research into the market and the feasibility of its user benefits. You can have a dozen different ideas but if they’re not meeting customers’ wants and needs, you’ll need to reevaluate your core business activities.

  3. Sales and Marketing Plan
    Risk is defining factor for any bank, so mitigating that risk through market analysis, marketing planning, and a sales and promotion strategy is key. Is your chosen market new or saturated? How will you raise awareness and nurture customer interest in your product or service? What pricing and promotional techniques will you use to encourage customers to try your product? How do all of these decisions differentiate you from your competition? Knowing the answers to these questions will help you to clearly define your growth potential.

  4. Budget
    In addition to your profit and loss statement, you must have reasonable financial projections for your business. How much do you need to sustain operations over the next year, for example? What does your capital expenditure look like over that same period of time? Be detailed and above all, logical in these estimates.
  5. Consider how many of the above you have in place for your business? Having a proactive approach to this list can help you engender success in the long-run. But the list is by no means definitive, and like a business plan, is living documentation – always updating and evolving. So, if you’re thinking about acquiring a loan, I’d suggest that you reach out to a representative at your bank and have an in-depth look at these requirements. That transparency will ensure that everyone is on the same page. After all the more you know, the easier the process will be.

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