Applying for a bank loan is a normal part of running a small business and shouldn’t be feared. In fact, banks are some of the easiest people to approach for money. They are a business; they want to make money, just like you do. Banks are predictable and use the same loan scoring method as they did 100 years ago. You can use their predictability to your advantage.
CAMPARI is a process used by banks to evaluate business loan applications. Usage of CAMPARI declined in the economic boom but has been vigorously adhered to by most banks over the past few of years.
CAMPARI stands for:
They will want to know if you are honest and reliable. A strong business or employment history will help. It’s also easier to get a loan from the bank you for business or personal finances.
You will need to prove to the bank you and your team have the business acumen to manage a successful business. Use your previous trading or business plan to back this up.
Margin or Means
The bank will want to know if your business has significant net assets – how does this commitment compare to the amount requested from the bank? Are profits retained in the business?
Why do you need the money? Is is to buy equipment, overseas expansion? You need to have a plan for the money, banks will not cover contingencies or losses. If this is the purpose of your loan you should seek equity investment.
You need to understand your requirements and be able to back this up in your financial projections.
This is probably the most important factor, your previous trading history and/or your business plan should demonstrate that you can repay the loan.
Can you offer the back a guarantee they will recover the money loaned if you default? Banks will want security against your loan, whether it is through your business or a personal guarantee.
CAMPARI seems to be challenging, doesn’t it? Not really, well let me break it down for you simpler. If you are established within your field you want to start a business in, have a well-researched business plan with robust financial projections then you have a chance of getting a business loan from a bank. If you are prepared to offer security against the loan and have a sound financial history then you have an even better chance.
This rules out anyone without experience in the sector, people who do not have a fully developed idea, do not have a grasp of the financial side of running a business and cannot offer any collateral against the loan.
Banks are there to make money, you can’t blame them for turning you down if you fall into the second category. But if you fall into the first category you can expect a bank to help you fund your business in 4-6 weeks. Much quicker than if you went to an Angel investor who would want to perform due diligence on your business before they invest.
What should you do if you fall into category two? Well, you have two choices. Wait and develop your business or personal circumstances until you fall into the first category or find an investor that will evaluate your business using more emotional criteria rather than purely a business one. Incubators, community funds, governmental loans, crowdfunding and Angel Investors (to an extent) base their decisions on more emotional grounds. This does not mean your business should be any less viable than one that would qualify for a bank loan. It means you need to highlight the qualities of your business or team that falls outside the scope of CAMPARI.
To get a bank loan they will expect you to have prepared a full business plan or funding document to support your loan application. Unlike investors, banks usually read your whole business plan. Make sure it is compelling and succinct, make sure your financial projections are robust as they will be intensely scrutinised.