Applying for bank finance in the current environment

I recently met with a group of senior business banking managers and they have indicated that despite increased funding being made available for lending to SMEs, a considerable number of business customers’ credit applications are unsuccessful due to poorly prepared proposals.

Over the last number of years the bank credit approval process has undergone significant changes. Not only is there less money to lend, which means that there is far greater competition for the reduced pot of funds available for lending, but senior business relationship managers discretionary powers have been diminished. The formal credit approval process is now resting with dedicated credit review teams with a more forensic review of each application. In addition, the historic property and asset based lending has ceased and now the focus is on income and future cash flows.

The new state-backed Credit Review Office, set up in early 2010, aims to tackle the issue of credit to small and medium-sized businesses up to a limit of €250,000. The publications of their Quarterly Reports have introduced more transparency into the approval process.

In December 2010, the Credit Supply Clearing Group, which was setup by the Department of Enterprise, Trade and Innovation and the Department of Finance published a guide entitled ‘Your Business, Your Bank’. The aim of this Guide is to help bring clarity to the current realities of funding your business and how you can best position your business to secure the funding it needs to remain viable or to help your business to return to viability.

The guide also outlines the various funding options open to your business, gives a real insight into what Banks look for when examining credit applications, gives information on credit pricing and outlines practical tips on how to package your credit application.

Finally, the key to securing adequate funding and finance for your business is that you must clearly demonstrate that your business is viable. A realistic business plan and cash flow forecast (at least 6-12 months) that outlines a clear action plan are a minimum requirement of any successful application for bank finance.

Contact Dylan Byrne Partner OSK for further guidance and support with your banking applications.

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