Turning your business idea into reality involves showing the bank that you’re worth investing in—also known as bankability.
bank·a·bil·ity (adjective)
acceptable to or at a bank; reliable.
"A bankable assurance."
Your idea alone won’t get you capital, and lenders look at several things when determining your bankability.
The five Cs of credit
These are factors financial institutions can use to determine if you're eligible for lending:
- Character: your history of repaying debts as indicated by your credit score
Your credit score is determined by several things, including overall credit history, payment history, available credit usage, total amount of credit owing and how often you request a hard credit check.
While a lower credit score isn’t ideal, it doesn’t mean securing a loan is out of the question. Start actively improving your credit score (and your chances of getting financed) by implementing credit building practices. - Capacity: your ability to repay a loan
Your debt-to-income ratio will be calculated to assess risk. The lower the ratio, the better. Improve your capacity by boosting your salary and reducing debt. - Capital: money you invested in your business
If you invest your own assets, it demonstrates your seriousness and can lead to a financial institution being more likely to loan you money because it is not the only one exposed to potential financial loss. - Collateral: your assets that the financial institution can take as security in case you can’t pay your loan
- Conditions: how you plan to use the money plus external factors
This includes loan terms (interest rate, principal and purpose) and conditions in which you’re operating (changes in the market, industry, economy and legislation). Questions that may come up are: Is your business booming or struggling? How will these factors affect your ability to repay the loan?
Overall, financial institutions are looking for responsible, trustworthy people who have enough cash flow to repay the loan, a proven record of paying on time and investing in their ventures, and are operating their business in favourable conditions.
Other considerations
Some other things to consider when thinking about your bankability can include having a business plan and reliable revenue streams.
Business plan
A solid business plan proves that your business is set up for success. It outlines the foundational work of getting your business up and running, your market research, cash flow projections and launch plan. These components explain to your lender how strong of a candidate you are for financing.
If you need help, check out ATB’s business plan template to get started.
Revenue projections
Through this exercise, you’ll be outlining your profit and loss statement showing that you understand the capital you need to start your business and how long it will take to turn profit. This will also highlight your grasp on your gross and net profit margins, depreciation of any assets your business owns or plans to purchase, and identify your projected break even point.
Grants and additional funding
Boosting your bankability can also involve exploring ways to enrich funding that are specific to your industry, niche or demographics. For example, the Government of Canada’s Business Benefits Finder allows you to find programs and funding opportunities.
Government grants aren’t your only option, though. Business development and grant programs for women entrepreneurs, BIPOC businesses and new Canadian entrepreneurs can also be part of your startup funding plan.
Set yourself up for success
Navigate your bankability with an expert. Connecting with an advisor can allow you to build your financial literacy, provide the foundation to understand your bankability, reach your goals and set yourself up for entrepreneurial success.