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Successful Loan Applications: The Secret Ingredients
When approaching a bank to raise funding for a new business venture in the catering
and hospitality sector, it is important to have a well-prepared and presented case in
order to achieve the desired outcome.
Roy Hudghton reveals the ingredients for making a successful loan application…
The process to follow when preparing a good meal is similar to that which should be adhered to when approaching lenders to raise funding on the value of a business.
In the professional world, it is vital that your team of advisers includes a commercial solicitor, a financial adviser, an accountant and a qualified business-valuation expert. Those ingredients mixed properly together will produce an infusion of flavours (ideas), all of which should be to your benefit.
Just as it pays to shop around for the right ingredients, the same advice applies to anyone looking for a team of professionals from which the lender will seek input when considering a loan application.
Average purchase prices have risen over recent years, and loan-funding is being sought at ever increasing levels, with banks now taking a closer look at loan applications to back a new business proposal than when the market was at its peak.
Banks can now be more fussy about who they choose to support, and if any of the ingredients are missing, and the pie is only half-baked, they will send it back to the kitchen. This puts the application for funding on the back foot.
The secret ingredient - a properly constituted, professionally prepared business plan - is important, but a word of warning: easy on the spices and peppers. Not everyone likes their food with a strong and hot aftertaste. It is better to produce a plan which is clearly achievable and sustainable from day one.
This advice comes as a result of what happens to the recipe after the secret ingredient is added. It spends 40 minutes at gas mark 6 - the potentially problematic visit of the report and recommendations to the bank's Credit Committee. If all of the documentation is in place, a decision can be taken on the spot and what will come out of the oven will be the desired result.
In the hotel and restaurant business, you try to satisfy customer tastes, and the same diligence is required for a loan application in order to achieve the ultimate objective - a positive response from the bank's Credit Committee leading to a formal offer in writing.
The conditional offer of loan will be predicated on the prospective borrower following these simple guidelines, yet loan applications all too often fail through a lack of a basic ingredient.
The best ingredients cost the most, but they contribute significantly towards producing a better all-round end product. There may be a perception that the best qualified solicitors, accountants and surveyors are expensive but, like everything else in life, you get what you pay for.
It is a false economy to cut corners in an attempt to save money at the outset. This will almost certainly be picked up by the Credit Committee and it does not bode well for the likelihood of the application being granted.
So, let's all dine out on our combined success and remember to check the sell-by date prior to purchasing.
This article has been edited from its original version. For the complete feature please see Catering in Scotland magazine July/August 2007.
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