Getting your bank manager to say YES A guide for small businesses
MGBM001 AUG2016 Forum of PrivateBusiness
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How to get your bank manager to say YES. A guide for small businesses. Bringing a guide like this together has only been possible because of the collaborative efforts of at least three people. The first is Noel Guilford, who has more than 30 years’ experience in the accountancy profession – and who specialises in corporate finance and business consultancy. Second is Olivia Stefanino, a business coach, author and change management specialist who spent several years working in the banking industry as a journalist. The third partner on the project was a bank manager who only agreed to share his secrets if we didn’t identify him! A fair swap, we felt. You’ll see his comments throughout the guide. So, apply this advice to your own situation and then go and visit your bank, confident in the knowledge that you’ve done all you can to secure a “yes” to your request for finance.
The Anonymous Bank Manager Of course, we’re not about to reveal his identity. Suffice it to say that his experience in banking spans more than 30 years – and, as well as helping hundreds of businesses to make it big, he’s also turned down many more applications for finance from individuals and organisations who simply failed to follow the guidelines we’ve outlined for you in this special guide. There. You’ve been warned!
Going to your bank manager to ask for a loan is never easy - but in today’s financial climate, it’s even tougher. And with more and more borrowers chasing a dwindling pot of cash, your chances of getting a share might seem severely diminished. But the good news is that it doesn’t have to be like that – providing you follow the advice that we’ve outlined for you in this guide. Imagine how useful it would be if you could somehow ‘know’ what your bank manager was thinking, without having to ask the question! Armed with that information, you’d know how to tailor your request and give yourself the best chance of getting the money your business needs. However, trying to ferret out the real, unwritten ‘rules of thumb’ used by the banking industry isn’t easy. Nevertheless, we’ve done all we can to find out what you can do to make sure you get the ‘thumbs up’.
“If the bank you’re approaching doesn’t know you, get someone credible to introduce you. It’ll add a lot of weight to your request.”
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We know that there are already a lot of guides out there that will give you the ‘official’ information you need when it comes to applying for finance. But many of them do little more than send you off in different directions to gather the knowledge you need. If you’re like most business owners, you simply don’t have the time to go surfing the internet, accumulating facts. What you want is a practical, one-stop ‘how to’ guide that tells you what you really need to know. You know, the kind of information that you’ll never find on the web.
“As with many things in life, it pays to be persistent. It also helps to have someone on your side within the bank, fighting your corner!” “A high proportion of well presented deals do get agreed – or are agreed subject to conditions – so it’s really worth making the effort to create a professional looking document which answers all the credit sanctioner’s questions. And if you’re turned down in the first round, find out why – and address the problem.”
Make your bank manager look good! The key to success is to recognise that, while your friendly bank manager might be interested in you and your business, he’s actually far more interested in furthering his own career. Getting noticed for making good decisions – being seen to make profits rather than losses for the bank – is a good career move. And make no mistake, your bank manager isn’t going to put his career – or pension – on the line for you, no matter how engaging you are or how exciting your proposition, unless you’ve got a credible plan to back up your argument. More of that later. For now, recognise that, if you can help your bank manager to achieve his goals, you’re in with a chance. Unfair? Possibly. Useful information if you know how to use it? Definitely! So, how can you make your bank manager look good? Firstly, understand that the first person you’ll be talking to probably won’t be the person making the decision on whether or not you get your money. The person sitting behind the desk at your first appointment – who’ll more than likely have the title ‘business manager’ or ‘relationship manager’ on his corporate calling card – is probably in no position to call the shots. Whatever he may think, his job is to weed out the hopeless cases from those which might be worthy of consideration – and of course, the good ones do all they can to build up a portfolio of credit-worthy clients. If your application falls into the ‘worthy of consideration’ category, it’ll be forwarded to your bank manager’s credit sanctioner, along with a full report and a brief recommendation. Of course, the credit sanctioner is also much more focused on the future of his career, which will be judged chiefly on the success of his decisions, rather than on whether or not your business succeeds. So, you’re going to have to find a way to convince someone you’ll probably never meet that your proposal is worthy of examination. Again, it’s time to ask yourself how you can ensure that saying “yes” to your application for finance is going to score brownie points for everyone further up the banking food chain.
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“Despite what the media says, good bank managers ARE interested in their clients. And, of course, it’s true to say that good clients make their [bank] managers look good too!” Remember that everyone at the bank wants to be rewarded – and the easiest way to earn plaudits is to be seen as a ‘safe pair of hands’. No one wants to take the kind of decision that could come back to bite them later! It’s also worth bearing in mind that, not only is your bank manager tasked with selling products and hitting targets, but the lending managers also have targets to meet. You can take comfort from knowing that there is money in the pot – and it’s been earmarked for lending. Follow the rest of our advice and you’ll rapidly increase the chance of it being you!
“Most companies fail to spend enough money on putting good financial systems in place to control costs and monitor activities. Sadly, they think they can get away with allocating funds to flashy cars and air conditioned offices instead. But, actually, the companies that succeed are those with the least who spend their money on marketing and managing the finances.”
Be clear and credible Oddly enough, even though we’ve agreed that your bank manager isn’t particularly interested in either you or your business per se, if you can convince him that you could be the next Richard Branson, he’s going to sit up and take notice. After all, he’ll get brownie points for having ‘discovered’ you. While it should really go without saying, it’s worth putting some thought into how you’re going to present both yourself and your application. Those lovely stories you hear – the ones that really give you hope – about how someone scribbled a few sums on the back of a napkin and then got a MASSIVE loan are, sadly, in most cases, complete fiction. And while your bank manager is determined to avoid being associated with any finance applications which trail the slightest whiff of potential failure behind them, he’s always looking for the next success story. You can help him recognise you as the ‘next big thing’ by producing a concise document which sets out a clear strategy for your business. Of course, he may well want to hear you tell the story too – but the act of writing it down helps clarify it in your mind, so it’s effort that pays off twice.
“In the current climate, it’s probably worth approaching four or five banks – and it pays to do your homework. For example, some currently have a policy not to lend to pubs and restaurants, while others have an ‘ethical’ policy, so if your business isn’t strictly ‘green’, you won’t get any joy there! ”
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Have a strong vision, clear strategy and well defined objectives The great news is that, if you can produce a document that contains a clear strategy and outlines your objectives for your business, you’ll already be streets ahead of all those other business owners competing against you for a share of the bank’s money. Frightening but true. If you’re wondering why this step is so important, remember that, when the bank lends you its money, it’s effectively working with you. Now, who would you rather be working with – someone with a passionate vision, sound leadership skills and clear objectives, or a dishevelled scruff muttering nervously how he’s “onto a winner”. We’ve all had the misery at some point in our careers of working for the type of leader who prides themselves on keeping their cards close to their chest. You can’t afford to let your bank manager feel that they are being kept in the dark – in any area. So, adopt the stance of a leader – and remember that leading is all about communicating. And, before we move on, it’s only right to point out that the first person you’ve got to convince is yourself. If someone presented their ideas in the way you’d been planning, would you put your hard-earned cash behind their business?
“We hate it when we’re given a really long-winded business plan. If it’s too long, we really don’t want to read it. Don’t bore us! And don’t take us for fools either. If you’re short on facts, you can’t hide behind wordy missives – we’ll see through it!” “While the majority of the business plans we get are written either by directors or their accountants, increasingly we’re getting submissions from companies who have sought help from third-party organisations like the Forum, whose consultants have plenty of hands-on experience helping SMEs .”
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Write a plan and take the time to produce meaningful financial projections If you really want to improve your chances of being taken seriously, you absolutely MUST produce a proper business plan – supplemented with well thought out financial projections. See our guide on how to write a business plan. For maximum credibility, you need to include the following five elements in your submission:
• A business plan • A cash flow forecast • A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis
• Latest set of audited accounts (if appropriate) • Latest management accounts (if appropriate and updated monthly). • A list of debtors and creditors should also be included.
“Enhance your chances of success by knowing your cash flow pressure points, researching your market well, knowing your business and by performing a SWOT analysis – and having strategies to cover the weaknesses and threats.” Your business plan should contain an in-depth description of the business – together with your business objectives and how they’ll be achieved; the short-, medium- and long-term vision that you have for your business; a description of your potential customers – together with a strategy for how you’re going to reach them, a brief about your competitors, how they operate and what threat they represent; and finally an assessment of your financial needs, what the lending will pay for and how it will be paid back. The four most common mistakes made by organisations applying for finance are:
• Not providing enough information • Being too optimistic • Not understanding the difference between cash flow and profitability • Not using all available funding options to aid cash flow – such as invoice finance, asset finance, overdrafts and loans (including the Enterprise Finance Guarantee scheme) – either individually or as a complete ‘finance solution’.
“Amazingly, only 50% of finance applications to banks are accompanied by a business plan and, more worryingly, only 10% of those seeking money bother to put together a SWOT analysis!”
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Oh, and by the way, when it comes to your financial projections, you need to forecast for somewhere between one and three years, depending on the nature of your business. Ideally, the scope of your projections should at least correspond with your overdraft period. Anything less is perceived as ‘flaky‘ at best and a ‘poor bet’ at worst. You shouldn’t expect to get away with just producing a cash flow forecast; for maximum credibility, you must also include a profit and loss account, together with a balance sheet. If you’re worried about putting something like this together, you can get help through the Forum’s network of advisers.
“Most people’s idea of cash flow forecasting is pretty weak – and nowadays, with the number of accountants and business support agencies that are there to help, there’s really no excuse for it.” You’ll also want to think about whether you can strengthen your case by offering your own personal guarantee. The bank likes to see that you’re prepared to put your own money where your mouth is – and by backing yourself in this way, it gives your bank manager further peace of mind.
Demonstrate how you’re going to reach your market and make money Of course, you’re going to need much more than fancy spreadsheets with big numbers to convince your bank that you’re worth backing. The key to business success is knowing your target market, and having a strategy for communicating with potential customers AND persuading them that your product or service is worth the pain of parting with their hard earned cash. Within the business plan, you should articulate your unique value proposition. You can do this really effectively by creating an ‘irresistible offer’. A great example of an ‘irresistible offer’ is the one famously promoted by Domino’s Pizza: “Hot, fresh pizza straight to your door within 30 minutes or less – or you don’t pay!”
“Marketing is often neglected. Frequently, people approaching us have a good product or service – but they don’t know how to reach their potential customers.” You’d also do well to demonstrate that the value of what you’re selling far outweighs what you’ll be charging. If the bank can see that your customers will get, say, 10 times the return on their investment, they’ll be much more confident that you’re actually going to make money.
“If you don’t want to be one of the many time-wasters that grace our offices, make sure that you’re sufficiently prepared and have an adequate marketing plan. All too often, we’re approached by people with a great idea, but no understanding of how they’re going to reach their potential customers. These people get a polite “no”, every time!”
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Be up front about the risks While it’s tempting to confine your business plan to all the ‘upsides’ of your business, you should be aware that, if you don’t address the risks that your business faces, your bank manager will start to jump to conclusions. Worse, he’ll worry that you’re hiding something – which will lead to him using his imagination to create ‘risk scenarios’. This is not good for you because you won’t know what’s going on in his mind, which means that you’ll lose control of the situation. Rather than have your bank manager wonder what isn’t being revealed, it’s far better to be up-front and honest. Being prepared to provide your bank manager with a healthy dose of reality will keep him in his comfort zone. (And remember, it’s your job to make your bank manager look good). Of course, when you’re talking about the risks in your business plan, you’ll also want to show that you’ve done your ‘due diligence’, which is especially important if you’re intending to take over an existing business. And while it should go without saying, always make sure that you can justify – with evidence – your statements about the due diligence investigations you’ve undertaken. Finally, bear in mind that lending you money is a risk for the bank, so it’s imperative that you address the number 1 major concern, which is: “How – and when – is the bank going to get its money back?”
“It never ceases to amaze me that people actually think we’ll lend them money when they can’t even be bothered to present their case properly. After all, would you give your hard-earned cash to someone who couldn’t tell you when you’d get it back? All too often, it’s not clear how a company is going to be able to repay us or when! If you want us to take you seriously, you MUST address these two key questions.”
Make a powerful presentation Of course, you can’t simply waltz into a bank and demand to speak to a lending manager; there’s a certain protocol you have to follow. The first step is to make contact with the appropriate person at the bank, introduce yourself and then send him your business plan. Then call to make an appointment to discuss your plan. Providing you’ve been successful in gaining that appointment, you then need to decide how you’re going to handle the meeting. It’s often been said that people fear public speaking more than they do death, but whether the prospect fills you with dread or glee, if you want to secure funding for your business, you can dramatically increase your chances of success by making a professional presentation to the bank.
“You’d be surprised by how many people come into our offices not looking as though they’re ready for business. Curiously, they’re also the first people to complain when their application is turned down.”
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It goes without saying that it’s always worth rehearsing your presentation – and, if you can, get a critical friend (preferably one who’s a fan of the TV series Dragon’s Den) to listen to your pitch and give you some feedback. If the thought of presenting your case to your bank makes you go weak at the knees, it’s perfectly acceptable to take in other people with you – but, for full credibility, make sure that they have a key role within your organisation. Pulling in a motivational speaker who has no real connection to your business isn’t going to do you any favours.
“If you don’t look credible, you’ll fall at the first hurdle! A rule of thumb in banking is that if your proposition would still stack up even if you achieved half the profits you expected in twice the time then, all other things considered, we’d tend to look favourably on your application.” And, of course, if you’re not going to be the main speaker, you need to make sure that you’ve still got a role to play at the meeting, otherwise you’ll simply be sitting there looking like a lemon. Equally importantly, if you’ve brought someone in to handle the main presentation for you, avoid the temptation to keep interrupting them – otherwise, you’ll both look completely inept! And just one last thought: before you go and order several bottles of champagne to celebrate your bank manager’s verbal ‘thumbs-up’, remember that there are still a number of legal hurdles to jump. Take this seriously – it’s not uncommon for deals to fall through, even at this late stage. So … using this advice, you’re in with an excellent chance of getting your bank manager to say “YES”!
We can help you... The Forum has been working with small businesses just like yours for nearly 40 years – through good times and bad – helping them get the best out of employees, save money and get their voices heard. If you’d like to know how we can help you get the finance you need by working with you to create a credible business plan and presentation, call our helpline on 01565 626 001 or for instant access apply online at www.fpb.org.
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Published on Feb 20, 2017
Going to your bank manager to ask for a loan is never easy - but in today's financial climate it is even tougher. And with more and more bor...