Answer to Question by Patti

I have a question for Dr Ray Hamey. Do banks really take any notice of business plans or just real estate security? 

My response:

That’s q question often asked.  First of all, when you make a loan application, it is sent to the headquarters and assigned to very experienced accountants or business analysts.

Your bank manager will input their response and these comments often are helpful.

The bank accountants look at whether you have thought things through. They look to see if you have put adequate thought into the business plan.  Some of the things that the accountants will look for include Your contingency plans, cash flow, marketing, experience, and an overall picture of your commitment to the business.

The bank software analyzes the financial statements including your expenditure.  If your bank statements show continual bank issues such as unauthorized overdrafts, gambling, and other expenditure that indicates that your business is not under control, then, you are unlikely to get the loan.

This applies whether your financials are reasonable or otherwise (to a large extent).  Real estate security is often required especially for loans exceeding $100,000. The banks are very reluctant to have to undertake a repossession and go out of their way to help you in times of difficulty.

In summary, the business plan is reviewed by experienced accountants unless the loan is very low.  Banks and other lenders will review your business plan and cashflow statements closely and often they require real estate security for their protection.