How to manage your cash flow No. 4

What information does your bank require for a loan facility application?

The best advice we can give you is to try and run your business without loans and debt. That’s because the interest and fees on a loan facility, if used over a longish period, will cost a lot more than the capital amount of the loan. If you have any doubts about this, ask your accounting person to do a spreadsheet calculation for you.

The only time that it’s really justified to apply for a bank loan is if your business is so profitable that the return you earn on the money invested is higher than the bank’s loan interest rate. So, if the loan rate is 10% but you can earn 12% or more on the money invested, then go ahead.

Most companies apply for an overdraft because they don’t have enough cash at the end of the month to pay salaries or those creditors who threaten to stop the supply of essential raw materials. Not a good financial situation to be in!

And don’t, for heaven’s sake, be tempted to use your housing bond or your pension to fund the company – that’s a sure and quick way into trouble.

OK, so you feel you can make good use of the money and you decide to apply for that short-term overdraft or loan facility. Here is a list of the documentation your bank will ask for:

  • Audited Financials for 3 years
  • Management Accounts covering the period from the end of the last financial year to date
  • Debtors Age Analysis (remember how the bank calculates debtor cover – see No. 2 in this series of articles on managing cash flow)
  • Creditors Age Analysis
  • Fixed Asset Register
  • Annual Budget for the next 3 years, showing the effect of your loan or overdraft facility
  • Annual Cash Flow Forecast for next 3 years, based on your budgets
  • Company Documentation (Certificate of Incorporation, Memorandum & Articles, CK1, etc)
  • 3-6 months of bank statements (if applying at a different bank)
  • Amounts owing or deposits at other banks
  • Tax Clearance Certificate
  • Ownership Structure organogram
  • Short CV of directors and senior staff, such as financial manager or accountant
  • Personal Position Statements of owners/shareholders and directors (personal assets and liabilities)
  • Motivation for the need for a loan and how it’s going to be repaid
  • BBBEE rating
  • Business Plan ‑ covering nature of business, production/operations and factory facilities description, manufacturing process, sales and marketing plan, staffing, SWOT analysis, major contracts, competitor analysis, etc, etc

Yes, when you look at this formidable list, you will wonder whether it’s worth it? Well, that’s where an accredited business advisor can help you by putting this all together for you.


Garth Trumble

Garth Trumble



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