Approaching your bank manager for finance can be a daunting prospect, and many SMEs fear they will be turned down for bank finance.
In light of yesterday’s Bank of England lending figures, which showed a drop in business lending, it seems there is a fundamental disconnect between some businesses and their banks.
While some would blame this on an unwillingness to lend, others would argue that businesses simply aren’t approaching their bank, either because they want to stay out of debt, or because they don’t expect to be successful.
Whichever side is right, if you do want approach a bank for funding then it’s worth considering how you can make your application appealing to them.
John Allan, FSB national chairman, says: “The bank will base their decision on the information supplied to them, so making sure that it is robust is vital. We know that banks turn an application down because they don’t think the business will be able to repay it or because the business hasn’t properly demonstrated how they can repay it.”
In order to strengthen relations between businesses and banks, the FSB and the British Bankers Association have published five key tips which you can use to ensure you can maximise your chance of getting funding:
1. Develop a robust business plan
A clear business plan is key, not just to getting finance but for growing the business too. The plan should be a living document that evolves as the business grows and takes into account changes in the market as well as the financial situation of the business. A well thought, comprehensive plan will give the lender confidence in the projections made.
2. Build financial understanding
To have a successful credit application the business must be able to show they understand key numbers such as turnover, profits and existing debts as well as being able to show how the debt will be repaid.
3. Check your track record
When making a lending decision the banks will look at how previous lending has been managed in the past so knowing the credit ratings of the business owner as well as the business itself is vital as is having an understanding of what affects it.
4. Be honest
Be upfront about how much money the business needs as well as what it is needed for. Underestimating how much is needed may affect the lenders confidence in the owner’s ability to manage company finances and overestimating profits and revenue could affect the ability to repay.
5. Keep talking
Communication with the lender and getting feedback is important as a ‘no’ now might not mean ‘no’ in the future. The lender should be able to advise how to change the business model to secure finding and what elements of the business plan could be more robust.
The BBA’s Irene Graham said: “If you run a business with a good business plan and want funding, our message is go and talk to your bank. There should be no doubt that now is a good time for businesses to go and see their bank if they want to borrow.”