Applying for a bank loan is a normal part of running a small business and shouldn’t be feared. As long as you understand the process, banks are the most straightforward organisations to approach for money.
Banks are a business; they want to make money, just like you do. Banks are predictable and use the same loan scoring method as they used one hundred years ago. You can use their predictability to your advantage.
CAMPARI is a process used by banks to evaluate business loan applications.
CAMPARI stands for:
Character
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 for business or personal finances.
Ability
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 assets that can be used as collateral – how does this commitment compare to the amount requested from the bank? Does the business have any cash reserves?
Purpose
Why do you need the money? Is it to buy equipment for overseas expansion? It would be best if you had 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.
Amount
You need to explain to the bank how much money you need and what it will be used for. This should be backed up in your financial projections and with purchase orders, invoices, contracts or quotations.
Repayment
This is probably the most crucial section. Your previous trading history and/or business plan should demonstrate that your business is viable in the long term and that you can repay the loan.
Insurance
The bank will have to recover the money loaned if you default. Banks will want security against your loan, whether through your business assets or a personal guarantee.
Approach
CAMPARI seems to be challenging. Not really; well, let me break it down for you in a simple way.
If you are established in the sector where you want to start a business and have a well-researched business plan with robust financial projections. In that case, you can get a business loan from a bank.
You have an even better chance if you are prepared to offer security against the loan and have a sound financial history.
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.
This is much quicker than if you went to an Angel investor who wants to perform due diligence on your business before investing.
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.
- Find an investor who will evaluate your business using more emotional criteria 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 must highlight your business or team’s qualities that fall outside the scope of CAMPARI.
Conclusion
Banks expect you to have prepared a comprehensive 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 concise. Ensure your financial projections are robust, as they will be intensely scrutinised.
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