If you’ve ever wondered how lenders look at funding applications you may be suprised to learn that many of them use the CAMPARI method. No I’m not talking about the bitter drink famously advertised by Lorraine Chase in the 1980’s (for those of you not old enough to remember this may help).
But in today’s financial World CAMPARI is an aconym used to eveluate lending applications:
So what exactly do we mean by each of these:
Character – The more confidence the bank have in your ability to deliver, the more likely you are to receive the capital you require. Naturally, presentation is very important. Dress and act like a professional and don’t be late. Interact well with your bank manager and show you are a capable business leader. Be willing to show evidence of a good trading history and the ability to provide quality services to customers while making a profit.
Ability – Be confident when telling the bank what you need the capital for and how you’ll be able to afford the repayments. Many applications fail because the entrepreneur does not directly and clearly show how a profit will be made on the initial capital. If the bank managers can’t clearly see how they will get the money back they will judge the application to be too risky. When presenting your case, it must be obvious how you’ll repay the loan; use illustrations and bring in an accountant if necessary.
Means – You must have a well thought out and logical business plan that shows knowledge of your industry and target markets and be professionally presented. Often the business plan is an important part of whether an application succeeds or fails; bank managers will be very keen to see your business plan is viable and can produce a return. Make sure yours is watertight; ask a professional to help you if required.
Purpose – There needs to be a good business case for the capital rather than simply because your business will benefit from increased revenue. Some examples are:
- You have an order that needs fulfilling but there’s not enough liquidity in the business to do so
- You need a specific piece of machinery in order to expand your range of products and services
Whatever the reason for the loan, you need to show that it’s a good reason, and one that will generate a return
Amount – Lenders need to know why you need the amount you’re asking for. In specific detail, you need to show precisely what the money will be spent on. This is more than just telling the bank manager the purpose of the loan, you need to explain in detail how you’ve arrived at the figure you’re requesting and how it’s going to be spent.
Repayment – Lenders must be confident you’ll meet repayment terms, or your application will get rejected. Show substantial documentation relating to profit margins, cashflow forecasts and other key financial information. Don’t exaggerate forecasts or profit margins. Ask your accountant for help putting the forecasts together.
Insurance – Ensure you’ve taken steps to protect yourself should things go worse than expected. You’ll need a backup plan to ensure you can still pay off the loan should you receive a less than satisfactory return. Take out adequate insurance where need be and take steps to diversify revenue streams to ensure you’ll still be making a profit should the loan capital fail to make a return. In short, what’s the plan “B”?
Which just leave us with ICE which is also an acronym:
Interest – If the lender decides you, your business and the property are a suitable risk, they will issue a formal offer which will contain the interest rate, repayment structure, length of the loan and all the other necessary details.
Commissions – Lenders usually charge a fee for arranging the mortgage/loan facility, which is typically based on a percentage of the loan amount, (often ranging from 0.5% to 3% depending on the risk-weighting and the complexity of the deal). This fee and any other charges will be detailed in the format mortgage offer.
Extras – This usually means insurance, i.e. buildings, contents, public liability, key man, health and safety – all the policies you need to ensure that you and the lender are adequately protected should anything go wrong. Make sure all of these costs are identified in your businesses plan.