This blog looks at how banks make loan assessments and lending decisions using an acronym called CAMPARI
Another day and even more headlines about the global credit crisis which must affect the availability of loans for small businesses.
Banks are becoming much more risk sensitive.If you need extra funding, it is essential that you know how to ask for a small business loan and the banks will make loan assessments under the CAMPARI factors.
Basically the more you see the loan application from the bank's perspective, the more you make it easy for the bank to say yes rather than no.
Not all banks will stick to CAMPARI but it is an invaluable guide to see what the banks are likely to consider important in a loan decision.
You Need A Business Plan
The banks have the upper hand and you will be expected to prepare a business plan to support your loan application.
Follow their rules or don't expect to get the money.
See business plans for guidance.
But what happens after you have prepared your business plan?
How Do Banks Make Loan Assessments
The bank makes money by making loans but as the credit crisis is showing, there are major problems if they don't get the money back and repayment is always their first concern.
There are various acronyms for the way a bank manager and the bank' lending committee will assess an application for a loan. The one I find easiest to remember is the banker's acronym CAMPARI.
What is CAMPARI?
CAMPARI stands for:
CAMPARI - Character
The bank knows that the success of your small business depends on you as the owner and senior manager so it will look very carefully at how good a risk you are:
- How old are you and how is your health?
- What are your personal assets? Have you been a saver or a spender?
- What is your banking and credit history? Do you have a record of defaulting on loans or have you always paid back on time?
- How committed are you to the business?
- Do they believe that you are honest and with high integrity?
CAMPARI - Ability
The focus now moves a little beyond you to include your senior management.
- Is the bank manager impressed with your business acumen? Do you show that you understand the numbers and your business?
- What has been your record in business?
- Are you giving the impression that you are in control of your business? A sudden but urgent request for an increase in overdraft suggests that you are not.
- How strong is the management structure or does the business just rely on you? Do you or someone in your business have the necessary finance skills?
- Is there are succession plan if anything happened to you?
CAMPARI - Margin
- How much money is the bank going to make from the business loan?
- Is the risk and return ratio right?
CAMPARI - Purpose
- Why do you want the small business loan? Is it to finance expansion or is it needed to fund business problems? Are any problems resolved and if not, is there an achievable action plan?
- Can you prove your reason is true? Banks have been caught by people saying one thing and doing another.
- Is the reason sensible for the business?
- How do you want the extra finance provided?
CAMPARI - Amount
- How much are you asking for?
- How much do the cash flow forecasts indicate that you need?
- Do the forecasts look realistic?
CAMPARI - Repayment
- How long do you need the money for?
- Is the repayment profile suggested acceptable?
- Have you repaid similar loans in the past?
- If the business can't pay back the loan, can you?
CAMPARI - Insurance
- What security are you offering? What extra could you offer?
- How well does the offered security fit with the bank's criteria?
- Does the security available comfortably cover the amount of the loan?
Think Of Getting A Small Business Loan Like Selling To A Customer
When you see a customer you work hard to persuade them that you offer a good deal which is good for them.
When you are working out how to get a small business loan, you are effectively selling your idea of the loan to the bank manager. It is your job to persuade the bank that it is in the bank's best interests to lend you the money.
There is an old making question that you have to remember.
People always ask in their minds "What's in it for me?"
If you go to the bank with a badly prepared proposal with no security, you are failing the "what's in it for me" test.
Learn More About How To Get A Small Business Loan
I have just reviewed Rob Warlow's excellent ebook "The Secrets Of Getting Your Bank Manager To Say Yes" (affiliate link to sales letter for this 240 plus page book).
Nearly a quarter of the book is about CAMPARI and how your small business loan application is reviewed. The more you understand what the bank wants, and the more you give the bank what it wants, the more likely you are to succeed with your small business loan.
You can see my review How to apply for a small business loan
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