Bank loans, also known as borrowing facilities are a long established way of financing a business for both working capital and capital expenditure if the tenure is short term or long term, respectively. Such facilities may be in the form of local or foreign borrowings. They may take the form of general loans, mortgages, bank overdrafts or many other forms or variations.
The COVID-19 pandemic has resulted in reduced economic activity globally. Lockdowns have reduced trade and consequently income or revenue generation. However, some overheads such as rent and employee costs still have to be paid unless effective decisions are taken to reduce them. These erode working capital. Most likely businesses will approach financial institutions post lockdown seeking bridging finance.
This article seeks to give some pointers on how to make a successful loan application though requirements vary from bank to bank. An application may require inclusion of the following information.
- Type and amount of borrowings being sought.
- Proposed tenure, security and repayments.
- Full name of the applicant or borrower.
- Status of the borrower e.g. sole trader, private business corporation (“PBC”), private limited company, public limited company, partnership, etc.
- Company formation documents such as certificate of incorporation, information on directors (CR6, formerly CR14), registered address.
- Owners of the business including extent of interest e.g. shareholders and their shareholding.
- Directors and their profiles.
- Senior management and their profiles.
- Historical marketing and operational information. This may include subsidiaries, divisions, branches, products, market and market segments, market share, market developments, imports, exports, etc.
- Historical financial performance. This normally includes the Income Statement, Statement of Financial Position (“Balance Sheet”) and Cashflow Statement. The bank may insist on audited financial statements or those reviewed by qualified accountants.
- Historical information on volumes including analysis per product line, etc.
- In view of the COVID-19 pandemic and its disruptions to economic activity a bank may require a borrower to carry out and submit a COVID-19 impact assessment on the business. This may cover both the immediate and the future as some businesses may never be the same again.
- Financial projections, especially the cashflow, for the period to be covered by the tenure of the facility including key assumptions made. The projections should disclose the need for the borrowings, the purpose and the ability to repay.
- Product volumes to support the financial projections and any key assumptions made.
Check on approval process
It is advisable to check with your bank the loan approval processes and the likely turnaround time for planning purposes. Some loan applications may go through the Credit Committee and then the full Board of Directors.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
