Nearly every business has to go to the bank for funding assistance at some point, so I thought it would be helpful to outline some of the key ways to help yourself in getting the bank manager to say “yes”.
Banks are the major source of finance for small business in the UK. When applying for finance from your bank it helps if you follow procedures.
Firstly, always have a business plan. The main areas to be covered in a business plan are the management team background with details of qualifications and experience, the type of business and previous trading history.
You should also mention details of the market in which you are going to trade, likely extent of the competition, how you will market your business and a cash flow forecast for at least the first 12 months that demonstrates that you can meet the loan repayments and a projected profit and loss account and balance sheet.
The likely extent of the competition should also be highlighted, as well as the break-even point, details of any expert advice you have sought and a SWOT analysis of strengths, weaknesses, opportunities and threats.
It is also important to state how much you want to borrow and over how long; your commitment to the borrower, what sources of finance you will be using, security being offered and vitally, what savings, investments and other assets you have.
However, bank managers prefer to look at your idea in a nutshell before they bother with the details, which is why a two page summary of the plan is key.
But don’t be shy to ask more than you need. A 25% longer repayment and 10-20% more money will benefit you for obvious reasons.
Once you have your plan polished to perfection, invite the bank to you. Send the plan to banks with an invitation to visit your premises. That way, the bank manager can gain a good first impression of your business.
But before he sets foot in your office, make sure you are prepared. Think of questions that are likely to concerns him and have your answers prepared.
But make sure you negotiate the interest rates and terms after the offer has been made, never before and avoid personal guarantees where possible. Offer a charge on assets rather than personal guarantees, or limit the personal guarantee given.
And last but not least, minimise security. Do not agree too much security and only agree to the bank’s maximum exposure to loss. This keeps it available for any other borrowing you may need in the future.
It always helps to keep a good relationship with your bank in getting them to say “yes”. You can do this by
- Keeping to agreements made – making payments on time, not going over your agreed overdraft limit, etc.
- Warn them in advance, if you are going to go over the limit or default on payment.
- Tell about bad news. If there is bad news, let them know and let them know what you are going to do to remedy the situation.
- On time. Supply them with any information they require on time.
- Advance notice. Try to prepare the bank in advance for requests for additional finance.
- Borrow for the right reasons.