In the wake of the credit crunch bank lending to businesses became almost more of a holy grail than an everyday option, however, nearly a decade on from the crash, as the economy continues to stabilise, banks are becoming more open again.
If you don’t think crowdfunding or invoice factoring is right for you, then here’s the low down on how to give your business the best possible shot at obtaining bank funding.
How Much Do You Need?
If you need less than £15,000 as a start-up loan or cash injection a bank will generally encourage you to have an overdraft, a credit card, crowd-fund, self- fund or talk to your family.
While this might seem difficult it is, in fact, responsible lending. The options listed are more flexible for start-ups, and other businesses who need a relatively small amount of money, as they offer pliability regarding repayments rather than requiring a set amount each month at a time where cash flow can be erratic.
Think about alternative methods of funding if you only need a small injection to get going or to keep ticking over. Check out the Government start-up loans initiative for amounts up to £10,000 or consider crowdfunding but make sure you understand the differences between debt and equity based finance.
Sole Trader? Again, the bank will be looking at providing you with a method of personal funding due to the nature of that structure.
If you are going for bank funding then you must be looking to form a robust business with a long-term plan.
Fine Tune Your Business Plan
Banks need to see thorough and realistic business plans with overviews of strategy, expansion options and contingency are included to inspire faith in a potential lender.
This document should have a concise summary of the business infrastructure, finances, market, marketing plan, forecasted growth and possible diversification as well as insurance policies taken out by the business which can safeguard against potential loss or failure.
Who Are You?
The business manager involved in a funding application will look beyond what’s on paper and assess an applicant’s ability to fulfil the intent outlined in the business plan.
Have you run a business before? How well versed are you in your sector? How passionate are you about your product or service? Are you demonstrating a true commitment to driving this business forward or is it simply an idea?
To convey your ability, ensure that when you visit the bank to make your application you:
- Are punctual, well-rested and alert
- Dressed appropriately for your business context
- Know your business plan
- Can answer questions about all elements of their business plan
- Can provide evidence to support any claims they have made
Commitment can be demonstrated by showing what you have already personally given to the business in time and money. How far have you taken the business already? Is it at a stage where you now have orders or clients and need funding for products or staff?
A common term applied here is “skin in the game”; how much of your own “skin” have you invested? If the answer is none it is likely you will be turned down by a lender until you have driven your business to a point of true potential through your own hard work.
Be Pitch Perfect
It is crucial that applicants present a polished, well-rehearsed pitch which includes research pertaining to their industry, market growth, trends and sources of revenue. Loan applicants must be able to demonstrate their preparation for all eventualities that the world of business might bring.
A good pitch will also address; the loan amount required by a business, how the money will be spent and a timeframe of when the business owner intends to receive and repay borrowed funds.
Research Loan Providers
To save time and disappointment, research all lenders and their likelihood to lend the amount you want to a business like yours.
Government sanctioned scheme ‘Project Merlin’ came into effect in 2011 to promote economic growth by lending to smaller businesses so look for a lender who’s involved to increase your chances of bank funding.
And don’t think bank funding ends with Barclays, HSBC and co. newcomers such as Metro Bank & the British Business Bank provide tailor-made lending programs intended for use by startups and smaller businesses so ensure that you check out all available options.
Loanfinder is a useful tool for helping you to compare your options.
Assess the Terms
Business owners need to decipher the terms of a loan and make informed decisions on their ability to pay back as well as the loan’s compatibility with a given business strategy. Factors to consider include are fixed or variable interest rates, liability and the length of repayment.
Assistance with Bank Funding
As Chartered accountants and business advis,ors we are well versed in what it takes to achieve funding from a bank. We are Cottons Chartered Accountants and we provided businesses with business plan services and guidance to help increase your chances of hearing yes at the bank.