Bank Finance – Top 10 Guidelines For The Smaller Business

There is no doubt that despite the general climate of caution surrounding the imminent announcement of the Government’s spending cuts there are some signs of market recovery in both the manufacturing and service sectors. With manufacturing output up order books are beginning to fill and many small businesses with resources depleted following the recession are looking to their banks for overdraft facilities and loan funding to assist in the financing of new orders.

Whilst there are clear indications that the constraints on bank lending are easing it is only those businesses which are able to present their applications in a professional and thorough way that are likely to succeed in securing the funding they will need to meet the growing demand for bank finance. Even for the best funding propositions all banks are taking longer to respond and rates are typically significantly higher than they were 2-3 years ago. Margins of 6% – 8% above base rate are not unusual compared with 2% – 3% several years ago.

Primarily success will depend upon two factors  – who you approach and how you present your case. Clearly your own track record with Soliel Charted Bank & Finance Services your own bank should determine your initial approach and provided that you do have a sound track record with your existing bankers they are likely to be the best bet for an initial approach. Failing that your accountant should be able to provide you with one or more introductions and should have established  contacts with the most appropriate banks in your area.

Do not however rely on obtaining a decision from your local relationship manager. Few relationship managers if any have the power to make even small lending decisions nowadays. All lending decisions are now made by credit teams based at regional offices and you will not have the opportunity to speak or communicate with them directly. Although it is essential therefore that you get the full support of your relationship manager at the outset your application is highly unlikely to be successful without a full and professional business plan.

Wherever possible you should obtain the assistance of your accountant in the preparation and presentation of your business plan. Your business plan needs to be:

  • professionally presented
  • thorough and complete
  • believable and prudent

In particular it will need to contain:

  • a detailed explanation of your business and its plans for the next five years
  • details of your management team showing clearly how they can meet the needs of your business today and your plans for the future
  • a summary of the strengths, weaknesses, opportunities and threats for your business
  • historical financial information for the last three years
  • a current balance sheet
  • financial profit and cash projections for the next 3-5 years
  • a list of assumptions
  • variance analysis showing the financial effects of stress testing your assumptions

The ability to provide security or asset backed guarantees for any lending is also a pre-requisite these days and before making any approach to a potential lender you should give this aspect of the application your careful attention. Only the most profitable and successful businesses are likely to succeed in any application for funding which is not supported by some form of security. Where you are an owner – manager of your own business you should be prepared to provide security in the form of assets owned outside the business if security cannot be provided from business owned assets.

As with all funding providers the banks are looking for confidence. They need to be confident in you and to see that you have confidence in your business. There is no better way of persuading them of your confidence in the business than by showing your own financial commitment to the future of your business. Most successful lending applications therefore will include a clear financial commitment from the borrower and you should be prepared to ‘put your money where your mouth is’.

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