ECNETNews continues its informative series on securing financing from banks, emphasizing the critical role of establishing a reliable partnership with financial institutions. Previously, we discussed the necessity of opening an active bank account to manage all business transactions effectively.
It’s essential that these transactions accurately reflect the nature of the business. Some loan applicants may attempt to mislead banks by having friends deposit substantial sums into their accounts, creating a false impression of adequate cash flow. Such tactics are counterproductive and can jeopardize financing opportunities.
Bank accounts should genuinely represent business operations. Instances of inflated balances without proper documentation have led to the rejection of financing requests. Loans granted based on such misleading statements often result in poor performance.
For established businesses, banks typically accept statements from other banks. Accurate and unencumbered financial statements are crucial in building a strong case for financing.
Small businesses may also present statements from mobile money operators, as many transactions in this sector are conducted through mobile platforms. This method effectively demonstrates business cash flow.
Transparency with banks is vital. Business owners should disclose all pertinent information regarding their operations and assets, including both strengths and weaknesses. This comprehensive view enables bankers to provide informed advice and support.
Various financing options exist, such as working capital and bank overdrafts for recurring expenses or term loans for asset purchases that require long repayment durations.
Being open about collateral is equally important. Concealing valuable assets can impair the financing process. If banks discover undisclosed properties, it may lead to disqualification of the application, raising suspicions about the applicant’s intentions.
Moreover, reluctance to share crucial asset information can cause decision-makers to suspect potential default risks, further complicating the financing process.
Maintaining transparency benefits clients, as bankers often visit business sites before approving finance requests. For instance, a recent scenario involved a client seeking to enter the building block market in Tanzania. We advised him to test the market before undertaking substantial investments, ultimately saving him from financial loss.
Bankers possess extensive experience across various industries, equipping them to provide sound advice. Establishing a transparent relationship encourages constructive guidance. In the banking sector, business teams are continuously assessed on their financing portfolios; thus, maintaining high-quality customer relationships is paramount.
The third key factor is the responsible use of bank facilities. Funds should be utilized as intended, adhering to the repayment plan. Any form of dishonesty could damage future relationships with financial institutions.
In the upcoming segment of this series, we will further explore the importance of honesty in obtaining bank financing and outline additional requirements mandated by banks to secure loans.
