Why can’t I get a Business Loan? Here’s what Creditors really look for!
A Firstline Securities Limited Blog by: Wendell Mc Collin
In this ever-blossoming entrepreneurial age, we at Firstline are determined to enlighten you as best as we can in the practices and procedures surrounding the attainment of funding for your corporate endeavours.
Thomas Verguet’s earlier blog (click here in case you missed it), detailed five (5) things you should have in order to acquire such funding. Today, Wendell Mc Collin approaches this subject from the mind of the creditor…the person who decides whether or not your business is eligible for funding.
Read on & enjoy! Feel free to contact us at info@firstlinesecurities.com if you have any questions you’d like addressed!
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You consider yourself an “ideas” person. You see an opportunity and you are sure that with your expertise and ingenuity that there is no way that it can fail. No one is doing it now. I am getting the best price. Why is it that no Creditor will touch you? Why will no one finance your dream?
Why do Creditors ask these questions?
We as Creditors are not just trying to be “stink”, as the Trini parlance would go. We need to determine from the information that you give us, from our own internal investigations and research, who you are…and more importantly your ability and propensity to repay.
In the first part of this series we look at preparation. Some of the things you should have in place before you even walk through the door.
- Are you ready to devote your time and your life to your new endeavour?
I once got a story from a banker about three very wealthy individuals going to the bank for a loan to start the construction of a large Hotel/Resort. Needless to say none of these businessmen, very successful in their own industries, had ever run a Hotel/Resort. The bank manager turned them down to their surprise. He asked them about their experience in the Hotel industry and the time they would be able to devote to the endeavour given their other large businesses. They were unable to answer those questions adequately. Can you answer this question?
Now, this is a ticklish subject because any creditor would like to see multiple sources of income. However you must illustrate, by your preparations, a desire to be successful within an industry. Everyone wants to make a quick buck but it has been the trend that if you are not passionate and engaged about what you are doing, you will wane when the going gets tough. We as human beings will always gravitate towards things that we excel at and that are easy, when times get tough. Your perceived devotion will play a role in your assessment. You must be prepared for and have a plan to mitigate against the possible pitfalls. The “it won’t happen to me” methodology is seldom successful. This is why the next question becomes so important.
- Do you have skin in the game?
- Have you chosen the right industry? What are the barriers to entry in this industry?
We look at the capacity of the industry to sustain another player and provide you with earnings for at least the term of the loan. You must present a business plan that shows that you have properly researched the industry locally. There is always a plethora of information on the foreign market and little on the local market. The onus is on you to do the legwork to properly determine what the industry is like in Trinidad and Tobago. You need to know who the big players are and where you are going to fit into the market.
I was once told that the best place to get information is from an old businessman who has no other drivers other than to see you succeed. Speak to people who have attempted this before, and if they have failed determine why and whether you are able to overcome those obstacles. It is also critical to speak to those business people who are successful in their lines both in and out of the industry you would be entering.
Sir, I have people who are ready to buy 90% of my product !!!!!
Have you really properly assessed your market? Someone buying 90% of your product is very good for the start of business but not necessarily for sustainable growth. Within the realm of Credit we will be mandated to both examine your client’s business, as well as the relationship you have with this client i.e. contractual agreements, length of the relationship, the overall health of the client’s business, etc.
You must accurately determine your positioning within the market and what your entry strategy will be. The information you get about the industry must come from impartial sources as well as current market participants.
- Do you have an organised business?
The administrative road for an entrepreneur is often filled with bureaucratic minefields that you find difficult to navigate. Business incorporation, Annual Returns, Corporate Taxes, VAT, Bye laws, regulatory approvals etc. are all things that have to be put in place. And who can afford their very own accountant at that stage of the game?
YOU HAVE TO DO IT OR LEARN HOW TO DO IT!!!!!
Take the time to understand the schedule of things that need to be covered as a business owner and have these things done diligently. As a business owner you must understand all of the accounting jargon. You must be able to assess the value of your company as an accountant or financial analyst would see it. What are the key indicators that they look for? Understand these and how to ensure that your business is covered in these areas. We will explore these in a more in-depth way in subsequent blogs.
Our assessment of your management skills must show these proper organisational skills.
In subsequent blogs we will expand on some of these points, along with insights into financial analysis, risk assessments and other important forays into the mind of a Credit Analyst.
