How to obtain a business bank loan: overdraft with 'Campari'

A business loan or overdraft proposal will always be judged by the bank on what are known as the 'Campari principles'.Campari is used to determine whether a loan or overdraft proposal is a good idea or not and to satisfy it will require answering the following:

C – Character
Do you come across as someone who is capable of doing what you say and is your plan plausible? The viability of your products is going to be important here.

A – Ability
Are you, your products and your plan capable of achieving the targets on which your request for the bank loan or overdraft is based? A successful cashflow forecast is a must here - Figurewizard can produce this for you free.

M – Means
What are the assets of both you and your business? – Will the bank have a good chance of recovering their money through these in the unlikely event that things go wrong?

P – Purpose
What’s the loan or overdraft for? The magic word here is ‘constructive’. If the bank is satisfied that your proposal is good enough to generate both profits and positive cashflow then you should pass the test on this one.

A – Amount
Are you asking for enough or too much? Figurewizard profit & loss and cashflow / liquidity chart planners will tell you this.

R – Repayment
Can you show that you will be able to repay the loan or overdraft? This is not the same as security. No matter how good your security the bank will still say no if your proposal’s cashflow / liquidity forecast doesn’t demonstrate that the business itself can repay the loan or overdraft without any problems.

I – Insurance
An underinsured business is a disaster waiting to happen. You need to show the bank that you are covered against all eventualities. Consequential Loss and Key Personnel insurance for example are likely to be a must.

For an established business things are a lot easier when it comes to satisfying the campari criteria, just so long as there is no history of proposals that have significantly failed to meet previous profits and cashflow projections.

Figurewizard chart planners will allow you to develop free profit & loss and cashflow forecasts that will meet the required standards expected by the bank but only if the figures upon which they are based are plausible. Business bank managers are highly experienced and they have no problems in spotting unrealistic expectations.

They need hard facts to support your arguments. Anticipated growth must be evidenced with orders, contracts or commitments in writing; otherwise by historical data and charts showing a strong upward trend.

It should never be forgotten that when the bank advances a loan or an overdraft to any business it is acting as an investor but without the benefit of dividend income. That is why banks are cautious, relying as they do on the campari principles. This is also why you have to prepare your case with great care before you put it to them.

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Your Comments

If a small business is given a loan of 50k by one of it's directors, can this be then removed from the bank as loan repayment without it affecting the directors income tax return for the year - what is the correct bookkeeping entry for it - ie goodwill etc?
Comment by Hadders
Loans made by directors to the business are usually shown under sundry creditors in the balance sheet as 'directors loan account.' There are no tax implications on the loans as they have been made out of taxed income. However if a loan by a director attracts an interest or other charge then income tax is payable but only on the value of that charge.

It is important to note that strictly speaking loans the other way round; i.e. from the business to the director, are not allowed under company law. In that case the value of such loans would be subject to an income tax charge. They would also be regarded as being very undesirable by the company's bank.
Comment by Figurewizard
For my bank campari is not the issue any more. They are telling me that although they would normally have no problems in approving an increase in my overdraft (to finance leter of credit purchases from China) they simply aren't allowed to increase lending to any business no matter how good the proposal is!
Comment by FRW
It is true that thanks to tougher capital margins the banks' business branches have been on virtual strike for the last six months. The good news is (or at least eventually will be) the fact that as making phoney profits out of exotica such as ABS and MBO securities is not going to feature in their portfolios for a very long time; if ever, they will have to resort to good old fashioned banking once again. That is when Campari will be back in fashion. Given that banks have to make profits just like any other business, this could be a lot sooner than many people realise.
Comment by Figurewizard

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