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Business risk
This covers two areas:
- Management risk
- Environmental risk.
Management risk is the skills, commitment and abilities of the owners and management of your business.
We want to know
- Are you in the full-time employment of the business? Small businesses run by their owners are usually more successful.
- If the business is a franchise do the franchisors offer you training? The success rate of franchises is high.
- Do you have the necessary technical, financial and marketing skills to run your business? If you do not have these skills, do you have the support of people who do? A CV with details of your business experience could help.
- What is the net value of your personal assets as a percentage of the amount of the loan you are applying for?
- What is the minimum amount of drawings, that is your salary from the business, that you need to live on? What is the total amount of any loans that you have with financial institutions?
- How old are you?
- Do you have a succession plan for your business in the event of your retirement or death?
- Do you have enough personal insurance to cover your debts?
- Have you insured your business?
Environmental risk
The environment refers mostly to the industry in which you plan to set up your business and your customers. We will need answers to the following questions:
- Is it a low-, medium- or high-risk industry?
- Who are your main competitors?
- How much competition is there?
- Are there any special factors that will attract customers to buy from you rather than from your competitors?
- How many main suppliers will you have and will they let you buy goods on credit?
- Does anyone else have similar products that could affect your business?
- How easy is it for new competitors to enter the market?
- Is your business seasonal?
- Will any political event or policy have an impact on your business, for example, strikes?
- How well do you know your target market?
- Have you got a good location?
- Are your premises owned or leased and do they allow for expansion and improvements at a later stage?
- How many skilled and unskilled staff will you be employing?
- What percentage of your staff will belong to trade unions and what is the culture of the trade union?
- If you have a manufacturing business will you need to buy new or second-hand machines, and how will this affect your cash flow?
- Do you have good stock and quality control?
- Do you have a place to store the finished product?
- How sensitive is your business to the ups and downs of the economy?
Financial risk
Financial risk is divided into the finances of your business and the security offered by you. When it comes to your business' finances, we need to know how much cash you are willing to contribute to your business and where it comes from.
This cash contribution cannot be in the form of other loans. It should be at least 20% to 50%, depending on the type of business and set-up costs. You should be able to pay back the loan from your cash flow. This means that you will have to prepare a cash flow projection for at least 24 months.
We will look closely at your breakeven point, and would want to see a cash margin of safety of at least 20%. This simply means that you will have 20% more cash than the absolute minimum required. We will also want to know what back-up plans you have if your sales do not meet your expectations.
We need security before we will grant you a loan. When deciding on security, we will look at both your personal and business assets. Very often, the equipment that you are buying can form part of the security you offer.
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