In a nutshell, your sales or business model is the way your company makes money.
This is important to outline in your lending proposal because it will help to demonstrate your credit worthiness and ability to service your loan.
Your business model will be influenced by your industry and the type of customers you have.
Industry
Industry can play a big part in a lender’s decision to approve a loan. Some lenders may be reluctant to lend to particular industries (e.g. printing, logging) if they have experienced investment losses in the past or view the industry as having negative trends.
Things that lenders will want to consider include:
- Whether any business and/or industry risks have been adequately mitigated?
- Whether the proposed loan is to an industry that is highly specialised or high risk?
- Whether there are any barriers to entry for your particular industry?
It’s important to provide as much detail as you can about your business in order to reduce the risk of any issues cropping up that may prevent your application from being considered.
Your Customer Profile
Customers equal revenue. Without customers, you’d have a hard time staying in business, let alone getting a loan! Lenders will want to understand your current customer profile, as this will demonstrate your future revenue capacity.
Your customer profile should include information about:
Type of customer
- Business-to-Business (B2B) or Business-to-Consumer (B2C)
- Average Transaction Size
- Size of Business (for B2B)
- Industry (for B2B)
Volume / number of customers
- Is there a high concentration risk? (i.e. 1-2 debtors making up a large percentage of your total revenue)
Your relationship with your customers
- For example, do you have contracted customers? This helps to identify the security of future revenue.
Debtors book
- A report outlining all of your unpaid accounts receivable, as well as the age of the outstanding amounts.
Finance systems
- What processes or systems do you have in place to identify and chase outstanding debt?
Growth of new business
- Are you experiencing growth in your customer base?
To avoid a situation where a lender declines your loan application due to factors around your industry or customer base, it’s important to show them what you plan to do (or are already doing) to reduce these risks.