Applying for a loan

Gaining access to finance is critical to the success of any small business. This simple guide helps you understand the financial information we look for when assessing your application for a loan including:

• Cash flow - including your policy on the payment of suppliers and how you manage poor payers
• Profitability - examining your costs, margin control and suggested actions to improve profitability

The guide also includes information on:

• Financial information required by banks - we identify the top seven pieces of information and explain why they are important to you
• Further support - a quick look at some of the extra help you can get from NatWest

These are the key areas we will look at when assessing your cash flow:

Having enough cash to pay the bills
Cash flow is a two-way process: money coming in and money going out. To ensure you are not being squeezed on both sides, you need to:

• Know when you are expected to pay - not all suppliers have clear terms and conditions
• Pay on time - if you can't, contact your suppliers to explain why
• Protect your credit rating - act quickly, don't wait until the start of court proceedings to pay

Managing your debtors
The key thing is certainty - knowing when you are going to get paid. Steps you can take include:

• Reviewing who you extend credit to - and how much credit you are extending to each customer
• Reviewing how long you allow customers to pay - see if this can be tailored or shortened for some customers
• Negotiating longer payment terms for yourself - so you have longer to pay

Over-reliance on a few customers
Many smaller businesses rely on just one or two customers. In an economic downturn, it only takes one customer to change supplier or go bankrupt to put your business at risk.

As a matter of course, you should:

• Know your customers - a check with Companies House can confirm who they are and let you check their accounts
• Check they are a good risk - carry out credit reference agency checks and ask for bank and trade references
• Use Business Status Alerts - available from NatWest in conjunction with Equifax
• Set clear credit limits - to limit potential losses
• Consider credit insurance - it could cover the debts owed to you

As part of your application we may ask to see your business plan to provide information on the performance, profitability and future plans for your business. This helps us to assess the affordability of any lending for your business.

To protect your profitability, you need to consider:

Prices
During a slowdown, there is a temptation to cut prices to drive up sales volumes.

Cost each product or service precisely and don't take on business if it does not make a profit. Look at ways to reduce costs as this will allow you more scope to reduce prices, and improve your margins.

• Think strategically - will a price cut genuinely help boost sales or help a valued customer through difficult times?
• Make decisions based on facts - don't rely on ‘gut feel', base your decisions on profitability
• Pass on price cuts - if you have to cut prices ask your suppliers to do the same. If they won't, ask for longer payment periods or shop around

Costs
You can maintain profit margins even if you are reducing prices, provided you also reduce costs. But don't just make cosmetic cost cuts - look for cuts that will have some impact on cash flow or profitability.

• Start with non-essential expenditure - then tackle fixed costs such as utilities, stationery and other outgoings
• Don't hang onto things you don't need - it costs you to store, insure and maintain them
• Consider selling surplus machinery or unsold stock - even if you don't make a profit, you will release some working capital
• Avoid getting emotionally involved - be hard-headed - if it loses money, do what it takes to protect your business

The financial information we ask for will depend on the level, term and purpose of the funding you need and the lifecycle stage of your business. But the seven items here will give you a good idea of the sort of information we may request.

Remember, online banking gives you access to historic bank statements.

Management Information
Information such as the profile of the business owner or management team, their investment in the business, any security available or other business interests will help to show the strength of your business.

Cash flow forecasts
'Download a cash flow forecast template (Excel, 20KB)' Some simple financial projections detailing payments you need to make and income you will receive. Cash flow forecasts will help you appreciate the impact of your decisions on the business and its financing needs.

Aged Debtors & Creditor Lists
'Download an aged debt creditors template (Excel, 17KB)' To make sure your business is not over-exposed to a single customer and the risk of non-payment, it's vital keep tabs on who owes you money and who you owe money to. We will be interested in the same things you are - when will payments come in and when will they go out?

Management Accounts
We will want to see how your business is performing relative to historic trends or projections. Where possible we will also compare performance against your last set of certified year-end figures. VAT returns provide a useful way of demonstrating recent levels of turnover.

Historic Trading Accounts
We will seek to understand various trends i.e. sales, gross margin, overhead growth/decline. This will create an accurate financial picture of your business and the sector in which it operates. For some smaller businesses, Income Tax returns may be used to demonstrate income received if formal trading accounts are not produced.

Profit & Loss Forecasts
'Download a profit and loss template (Excel, 18KB)' We need to understand the likely impacts of changes to income and costs on your business. This will contribute to building a realistic picture of future profitability.

Balance Sheet
'Download a balance sheet template (Excel, 18KB)' Like you, we need to know that your business is solvent. We may calculate some accounting ratios to assess your business's performance and compare these to previous results and industry standards.

We believe that it's important for businesses to know how you should expect to be treated by us and what you need to do during our relationship.

NatWest has contributed to creating The Lending Code (PDF, 249KB) which outlines what small business customers should expect.

You may need Adobe Reader to view some of these documents. Get Adobe Reader. Visit access.adobe.com.

Finding the right advice for your business can be challenging and time-consuming. As a NatWest business customer you can access a wide range of support, advice and information for your business.

Use your Business Manager
Get to know your Business Manager and make sure they understand your business. Introduce them to your accountant to ensure consistent financial forecasts and cash flow management.

Network with your Business Manager
Let your Business Manager introduce other customers to you and vice-versa, and get valuable insight from networking with other business owners on Smarta.

Use the Bank's services
Take a look at Business Mentor - specially designed to ensure businesses understand important matters such as employment law, health & safety and tax.

Use our business planning software
It's easy to use and has a range of features to help your business, including:

• Account management - manage accounts, appointments, jobs, invoices, customer and supplier records
• Business planning - quickly and easily produce a professional plan
• Online applications- apply for a business account online or manage your existing accounts with our online banking service

Check out our business guides
The NatWest Business School has a wide range of subjects covered in an easy to digest, accessible fashion.

Sometimes bank finance products may be inappropriate or unavailable to our customers. In these instances other non-bank finance sources may be more suitable.

As such, we have created a Sources of Non-Bank Finance factsheet (PDF, 137KB), which explains the benefits of a wide range of financial products now available to help businesses access the investment needed for them to grow and thrive.