1. Understand the lender’s position Don’t mix up the need for cash with the need for working capital. Working capital is money tied up in debtors and stock, less what is owed to suppliers. If you need money to cover losses that isn’t banking territory, you need equity.
2. Know the numbers Show you are on top of the numbers. Make sure you have monthly, or at least quarterly, management accounts and a computerised package to give you debtor and creditor listings.
3. Get your timing right The better information you have, the more likely you are to raise money sooner. Money folk hate last-minute requests for finance.
4. Take it when you don’t need it It may cost you, but secure lines of credit when the going is good. It’s always harder when you are under pressure.
5. Shop around I often come across customers who have banked with one company for many years but are then turned down for facilities. They are then accepted by a new bank. It seems the application goes down a different “new business” track.
6. Leave money in the company UK limited companies are the least capitalised in Europe (ie: they take out profit as dividends). This sends out the wrong signal to bankers: it suggests you aren’t interested in the long-term future of the business.
7. Look at alternatives to overdrafts Overdrafts are the most popular form of finance (about a third) but you should be aware of invoice discounting and factoring (see point eight).
8. Talk to your suppliers Don’t try and fund working capital through unagreed late payment. It will come back to bite you. Make a plan with your suppliers. What about getting them to “invest” with a convertible loan note?
9. Don’t choose your bank on cost Many banks are now offering a higher service model and going back to proper “relationship banking”. Think Metro Bank, Handelsbank and Triodos (if you are a social enterprise).
10. Use the internet There are a number of companies, such as Marketinvoice and Funding Circle, which link individual lenders to companies, using the internet as a market place. Check them out. And, finally, be positive! An ACCA/CBI survey at the end of last year showed that at least half the applications for loan finance are successful. Leave a comment below and let me know your experience!
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